moersttt)  of 
4  v (California 


THE  INCREASING 
GOLD  SUPPLY 

And  Its  Effect  on  SECURITY  VALUES; 

INTEREST  RATES;  COMMODITY 

PRICES,  Etc. 


Compiled  from 

THOMAS  GIBSON'S 
SPECIAL  MARKET  LETTERS 

1908 


WITH  AN  APPENDIX 


TM£ 

NIVERSITY 

or 


Published  by 
THE    GIBSON    PUBLISHING    COMPANY 

15  William  Street,  New  York 


Copyright,   1908,  by 

THE  GIBSON  PUBLISHING  COMPANY, 
All   rights   reserved. 


Contents. 

Page 

Gold  Depreciation  and  Security  Values     -       3 
By  Byron  W.  Holt 

Increasing  Gold  Supply  and  Stock  Prices     20 
By  Maurice  L.  Muhleman 

Gold  Supply  Not  Too  Great 32 

By  Maurice  L.  Muhleman 

Review  of  the  World's  Gold  Supply     -     -     37 
By  Arthur  Selwyn-Brown 

Gold  Depreciation  Means  Rising  Commod- 
ity Prices       -- 59 

By  W.  G.  Nicholas 

Gold  Inflation  and  Interest  Rates     -     -     -     67 
By  Professor  J.  Pease  Norton 

The  Gold  Supply  -- 73 

By  Thomas  Gibson 


Appendix. 

Page 

The  History  of  Prices 97 

By  Arthur  Selwyn-Brown 

Gold  Production  and  Prices     -     -     -     -       115 
By  Charles  A.  Conant 

An  Answer  to  the  History  of  Prices     -     -  118 
By  Alonzo  E.  Cottier 

Gold  Depreciation  (A  Rejoinder)     -     -     -  126 
By  Byron  W.  Holt 

189705 


FOREWORD. 

Interest  in  the  letters  bearing  on  the  gold 
supply  and  its  effects  on  security  prices  which 
have  been  issued  from  this  office  recently  has 
been  so  great  that  I  have  decided  to  combine 
the  views  of  several  authorities  in  a  single 
volume. 

A  correct  understanding  of  this  matter  is  of 
vital  importance  to  every  business  man  and 
particularly  to  the  investor  or  speculator  in 
bonds,  stocks  or  commodities.  Mr.  Maurice  L. 
Muhleman,  Mr.  Byron  W.  Holt,  Mr.  Arthur 
Selwyn-Brown,  Professor  J.  Pease  Norton  and 
Mr.  W.  G.  Nicholas,  who  are  the  contributors 
to  this  brief  symposium,  are  all  eminently  ca- 
pable of  passing  competent  opinions  on  the 
subject. 

As  my  personal  study  of  the  subject  has 
been  directed  particularly  to  the  speculative 
phase  of  the  matter,  I  have  produced  a  chapter 
on  gold  from  a  recent  work. 

THOMAS  GIBSON 


THI 
UNIVERSITY 

Of 


Gold  Depreciation  and  Security  Values. 

By    BYRON    W.    HOLT. 

The  big  investors,  speculators  and  property 
owners  of  the  world  are,  as  a  rule,  men  of 
unusual  intelligence  and  keenness.  Besides  be- 
ing practical  men  of  affairs  they  are  usually 
somewhat  close  students  of  conditions  and 
markets.  They  have  learned  how  to  solve  all 
of  the  ordinary  industrial  and  financial  prob- 
lems in  a  way  to  add  to  their  property 
holdings. 

In  recent  years,  however — that  is,  since 
about  1896  —  a  new  factor  has  appeared  in 
money-making  problems  that  is  so  insidious 
and  disturbing  that  it  is  confusing  and  con- 
founding our  wealth-getters,  both  great  and 
small.  Because  of  the  influence  of  this  very 
important  new  factor  in  upsetting  many  of  the 
calculations  of  our  actuaries,  treasurers  and 
auditors,  not  a  few  of  the  old  lessons,  rules 
and  maxims  for  acquiring  wealth  will  have 
to  be  unlearned  or  reversed. 

For  example,  there  is  no  more  certain  road 

This    article    was    specially   prepared    for   the    market   letter 
service. 


to  wealth  to-day  than  to  go  into  debt — intelli- 
gently. Neither  is  there  any  more  certain  way 
to  lose  wealth  than  to  become  an  ordinary 
creditor — that  is,  to  own  first-class  bonds  from 
year  to  year.  To-day,  the  conservative  who 
puts  his  money  into  government  or  other  high- 
grade  bonds  will  see  his  fortune  vanish,  while 
the  reckless  speculator  who  puis  his  money 
into  heavily  mortgaged  real  estate  or  the  stocks 
of  heavily-bonded  industrial  corporations  may 
see  his  wealth  multiply  rapidly.  If  he  buys 
these  stocks  on  a  safe  margin,  his  wealth 
will  multiply  even  faster. 

To  those  who  do  not  see,  or  do  not  under- 
stand, the  new  and  great  fundamental  cause 
that  is  silently  but  surely  and  rapidly  chang- 
ing the  ownership  of  wealth  and  overturning 
the  conclusions  of  the  past  experience  of 
wealth-getters,  success  or  failure  appears  to  be 
uncertain  and  a  matter  of  blind  chance.  To 
some  extent  this  may  be  true.  Some  investors 
and  speculators  may  happen,  ignorantly,  to  buy 
and  hold  the  same  classes  of  securities  that 
they  would  buy  and  hold  if  they  were  acting 
intelligently;  but  this  is  unlikely.  Those  who 
know  the  good  things  from  the  poor  things 
will  almost  certainly  succeed  in  trading  off  the 
poor  things  for  the  good  ones. 

For  example,  ordinary  investors  are,  per- 
haps, now  selling  more  stocks  than  they  are 
buying.  They  cannot  understand  why  stocks 


should  continue  to  advance  and  to  show  such 
remarkable  strength,  in  the  face  of  existing 
facts  or  of  any  coming  industrial  improve- 
ment that  appears  probable  to  their  ordinary 
minds.  They  think  somebody  is  making  a 
great  mistake  in  buying  stocks  so  confidently. 

But,  suppose  the  big  somebodies  who  are 
now  buying  the  stocks  that  the  public  is  sell- 
ing have  their  eyes  open  to  some  new  facts  and 
conditions  that  make  it  reasonably  certain 
that  business  will  revive  so  rapidly  that  stocks 
will  be  in  great  demand  at  high  prices  six 
months  hence;  who,  then,  is  mistaken? 

There  are  rumors  that  the  effect  of  gold 
supply  and  depreciation  upon  security  values 
has  been  a  subject  of  discussion  in  recent  con- 
ferences held  in  the  offices  of  some  of  our 
greatest  financiers.  It  is  said  that  the  conclu- 
sions there  reached,  at  least  in  the  minds  of 
some  of  the  participants,  are  likely  to  have 
far-reaching  effects  upon  security  prices.  Mr. 
Howard  S.  Mott,  the  financial  editor  of 
Harper's  Weekly,  says,  in  the  issue  of 
August  29: 

"There  is  no  real  'new  dogma'  in  this  theory 
of  the  effects  of  gold  depreciation.  But  the 
acuteness  of  some  of  the  effects  recently  wit- 
nessed has  led  to  earnest  consideration  of  the 
problem  it  presents  by  many  students  of 
finance.  It  is  quite  conceivable  that  our  cap- 
tains of  industry  may  be  actuated  in  the  'wis- 


dom'  they  are  displaying  at  the  present  time 
by  a  good  understanding  of  this  problem." 

In  considering  this  gold  problem  several 
important  questions  were  presented: 

1.  Will  the  gold  supply  continue  to  increase 
rapidly  for  years  to  come? 

2.  Does  the  purchasing  power  of  gold  de- 
crease as  the  quantity  of  gold  increases? 

3.  Assuming  that  gold  will  continue  to  de- 
preciate in  value  (that  is,  that  prices  will  rise), 
what  will  be  the  effect  upon  interest  rates,  bond 
values,  earnings,  stock  prices,  etc.? 

The  first  question  has  been  well  answered 
by  Mr.  Arthur  Selwyn-Brown  in  Thomas  Gib- 
son's Special  Market  Letter  of  July  28,  1908. 
As  a  mining  engineer  and  expert,  he  reaches 
the  conclusion,  after  considering  the  world's 
sources  of  gold  supply,  present  mining  methods 
and  capital  employed,  and  future  probabilities 
as  to  new  sources  of  supply  and  methods  of 
production,  that  "We  may  confidently  antici- 
pate progressive  yearly  increases  in  production." 

While  there  are  some  mining  engineers  who 
are  less  confident  of  the  future  than  is  Mr. 
Selwyn-Brown,  there  is  good  reason  for  think- 
ing that  his  conclusion  is  entirely  conservative. 
Gold  production,  in  recent  years,  has  been  es- 
tablished on  a  very  different  and  much  more 
certain  basis  than  that  of  20  or  30  years  ago. 
To-day  the  output  is  less  dependent  upon  the 
uncertain  output  from  placer  mines  and  more 


dependent  upon  the  almost  certain  output  from 
the  inexhaustible  supplies  of  low-grade  ores 
in  rock,  sand  and  clay.  Apparently,  the  only 
thing  that  can  materially  lessen  the  output  of 
gold  will  be  the  increased  cost  of  obtaining  it, 
due  to  the  depreciation  of  gold  itself.  If  im- 
provements in  mining  and  metallurgical  proc- 
esses do  not  keep  pace  with  the  decreasing 
purchasing  power  of  gold,  there  must,  and  will, 
come  a  time  when,  because  of  rising  wages  and 
rising  prices  of  machinery  and  supplies,  the 
cost  of  mining  will  so  nearly  equal  the  value 
of  the  gold  produced  that  production  will 
diminish. 

The  Wall  Street  Journal  of  June  5,  1908, 
expressed  the  opinion  that  "already,  it  may 
be  said  that  the  gold  production  is  apexing," 
and  that,  "in  the  opinion  of  the  leading  mining 
authorities  of  the  world,"  the  output  will  begin 
to  fall  off  in  from  three  to  five  years.  Unfor- 
tunately, the  Wall  Street  Journal  did  not  men- 
tion its  authorities  or  give  us  their  arguments. 
Had  it  done  so,  it  might  be  possible  to  show 
that  these  same  authorities  have  been  advanc- 
ing these  same  arguments  for  ten  or  twenty 
years — arguments  that  have  been  already  dis- 
proved by  facts.  One  of  these  authorities  may 
be  the  writer  in  the  Engineering  and  Mining 
Journal  of  June  27,  1908,,  who  said: 

"It  has  been  shown  by  many  authorities  that, 
taking  into  consideration  all  outlay,  gold  has, 


8 

in  late  years,  been  produced  at  a  loss.  While 
the  mines  that  pay  dividends  are  exceptional, 
those  that  produce  gold  at  a  loss  are  plentiful." 

It  may  be  true  that  the  average  cost  of  pro- 
ducing gold  exceeds  the  value  of  the  gold  out- 
put. The  production  of  gold  does  not  neces- 
sarily stop  when  the  cost  exceeds  its  value. 
Men  do  not  stop  speculating  in  Wall  Street 
because  the  average  speculator  loses  money. 
Only  15  or  20  per  cent,  win,  and  yet  the  supply 
of  speculators  does  not  diminish.  The  oppor- 
tunities for  big  winnings  attract  both  specula- 
tors and  miners. 

As,  however,  the  production  of  gold  becomes 
less  and  less  dependent  upon  chance  finds  and 
more  dependent  upon  the  use  of  "stamp  mills," 
cyanide  mills,  dredging  machines  and  other 
gold-extracting  apparatus,  employed  mainly  by 
large  corporations  and  working  on  inexhaust- 
ible supplies,  the  profits  of  production  will,  in 
future,  be  more  calculable  and  certain  and  the 
amount  of  gold  produced  at  a  net  loss  will 
diminish. 

The  one  thing  certain  is  that  the  output  of 
gold  has  doubled  twice  in  about  24  years  and 
is  continuing  to  increase  rapidly  this  year. 
The  payment,  in  London,  a  few  days  ago,  of 
$25,000,000  in  dividends  on  South  African  min- 
ing stocks  and  the  fact  that  these  stocks  have, 
within  three  weeks,  added  $100,000,000  to  their 
former  values,  does  not  indicate  that  gold  is 


produced  at  a  loss  in  the  world's  greatest 
mines,  or  that  "gold  production  is  apexing." 
If  the  output  of  gold  continued  to  increase  at 
an  average  rate  of  about  8%  from  1901  to 
1907,  when  times  were  good  and  the  cost  of 
mining  was  rising  rapidly,  will  it  not  be  likely 
to  increase  even  more  rapidly  this  and  next 
year,  when  times  are  bad,  when  labor  is  cheap 
and  efficient  and  when  prices  of  commodities 
are  considerably  lower  than  in  1901  and  1907? 
Is  it  not  the  rule  that  a  boom  in  the  mining 
of  gold  and  silver  follows  an  industrial  depres- 
sion? Is  not  a  decline  in  prices  and  wages 
equivalent  to  an  advance  in  the  price  of  gold? 
The  profits  of  production  being  greater,  why 
should  not  the  output  of  gold  increase  rapidly 
at  such  times? 

WILL    GOLD    DEPRECIATE    AS    THE 
QUANTITY    INCREASES? 

Space  will  not  permit  even  the  mention 
here  of  the  various  theories  held  by  economic 
authorities  in  regard  to  the  "quantity  theory 
of  money.'*  We  believe,  however,  that  the 
best  thought  of  the  best  economists  is  reaching 
the  conclusion  that  the  cost  of  producing  gold 
determines,  or  tends  to  determine,  the  exchange 
value  of  gold  with  other  commodities,  just  as 
the  cost  of  producing  other  commodities  deter- 
mines their  exchange  value  with  each  other. 
This  being  true,  it  naturally  follows  that  when 


10 

the  cost  of  producing  gold,  measured  by  other 
commodities,  is  low,  both  the  production  of 
gold  and  the  supply  of  gold  will  increase.  As 
the  quantity  increases  the  quantities  of  other 
products  for  which  it  exchanges  will  gradually 
decrease.  That  is,  the  prices  of  commodities 
will  rise. 

It  is  not  necessary  that  there  should  be  an 
exact  ratio  between  the  quantity  of  gold  and 
of  other  commodities.  Thus  no  one,  perhaps, 
will  pretend  to  say  that  prices  should  exactly 
double  every  time  the  quantity  of  gold  doubles, 
or  that  a  25%  increase  in  the  supply  of  gold 
will  be  followed  by  a  25%  increase  in  the  aver- 
age of  prices.  It  is  probably  true,  however, 
that  the  ratio  between  gold  and  other  things 
is  more  nearly  direct  than  is  the  exchange 
value  (price)  between  the  changing  quantities 
of  other  commodities.  That  is,  a  100%  in- 
crease in  the  world's  supply  of  gold  will  more 
nearly  depreciate  the  value  of  gold  50%  than 
will  a  100%  increase  in  the  quantity  of  wheat, 
or  copper,  or  peaches,  or  maple  sugar  depre- 
ciate the  price  of  either,  or  all,  of  these  com- 
modities by  50%.  Doubling  the  quantity  of 
some  commodities  would  more,  and  of  others 
less,  than  halve  their  prices.  Doubling  the 
quantity  of  gold  will,  perhaps,  after  allowing 
for  the  growth  in  the  world's  supply  of  goods 
and  for  the  natural  decline  in  the  price  of 
commodities  (especially  manufactured  ones). 


11 

be  about  equivalent  to  doubling  the  prices  of 
commodities — that  is,  to  depreciating  the  pur- 
chasing power  of  gold  50%. 

Thus,  since  1896,  the  world's  visible  supply 
of  gold  has  increased  from  $4,359,600,000  to 
about  $7,250,000,000,  in  1908,  or  66%.  From 
1896  to  March,  1907,  average  prices  rose  about 
60%  in  this  country,  and  40%  in  England. 
From  March,  1907,  to  June,  1908,  prices  de- 
clined about  15%  both  in  this  country  and 
in  England.  From  June  to  August  prices  rose 
about  3%  in  this  country.  At  present,  there- 
fore, average  prices  are  about  45%  higher  in? 
this  country  and  25%  higher  in  England  than 
they  were  ten  or  twelve  years  ago. 

Assuming  that  monopolies  are  largely  re- 
sponsible for  the  greater  advance  in  prices  in 
this  country  than  in  England,  it  appears  that 
average  prices  are  now  about  30%  higher  than 
they  were  in  1896  and  1897.  Average  prices, 
then,  have  risen  about  30%,  while  the  quan- 
tity of  gold  has  risen  60%.  It  would  appear 
from  these  statistics  that  a  yearly  increase  of 
about  2^%  in  the  world's  gold  supply  is  nec- 
essary to  offset  the  natural  decline  in  prices, 
and  the  increased  quantity  of  goods  and  that 
all  above  this  2%%  tells  directly  on  prices.  This 
statement  is,  of  course,  only  an  approximation. 
It  may  be  far  from  true  in  the  next  decade. 
It  is  probable  that,  during  the  next  two  years, 
prices  will  advance  much  faster  than  the  gold 


12 

supply  will  increase.  Possibly,  and  even  prob- 
ably, the  rise  in  prices,  during  the  next  five 
years,  will  fully  keep  pace  with  the  rise  in  the 
quantity  of  golcj. 

If  then,  as  now  seems  probable,  the  world's 
visible  supply  of  gold  increases  25%  by  1913, 
it  is  more  than  likely  that  the  price  level  will 
then  be  fully  25%  higher  than  it  now  is.  By 
1918  we  may  confidently  expect  to  see  prices 
50%  higher  than  they  now  are. 

EFFECTS  UPON  INTEREST  RATES  AND 
SECURITY  VALUES. 

The  preceding  brief  discussion  of  gold  out- 
put and  depreciation  is  necessary  because  it  is 
fundamental. 

If  the  gold  supply  is  not  to  continue  to  in- 
crease or  if  an  increase  in  the  world's  gold 
supply  does  not  mean  higher  prices  for  com- 
modities, then  there  is  no  need  to  waste  time 
discussing  the  effects  of  the  gold  supply  upon 
security  values. 

It  is  reasonably  certain,  however,  that  our 
gold  supply  will  continue  to  increase  rapidly 
and  that  prices  of  commodities  will  continue 
the  rapid  rise  of  the  last  eleven  years,  broken 
only  in  1903  and  1907. 

One  of  the  most  certain  results  of  depreciat- 
ing gold  and  rising  prices  is  rising  or  high 
interest  rates.  This  anomalous  fact  is  not 
understood  by  many  investors  and  speculators. 


13 

nearly  all  of  whom  naturally  suppose  that 
more  money  means  cheaper  money — that  is, 
lower  interest  rates.  The  explanation  is  not 
difficult. 

When  prices  are  rising  rapidly,  from  year  to 
year,  there  is  a  great  demand  for  money  to 
invest  in  property  which  is  appreciating  in 
value  and  in  the  production  of  the  things  that 
the  people  are  willing  to  buy  at  higher  and 
higher  prices.  Nearly  everybody  wants  to 
speculate  in  commodities  and  opportunities  to 
production.  Those  who  are  without  capital 
are  willing  to  pay  high  rates  of  interest  to 
obtain  it. 

When  prices  are  rising,  the  owners  of  prop- 
erty that  is  increasing  in  value  are  getting 
richer  and  feeling  richer ;  hence  they  are  spend- 
ing freely.  Because  prices  are  rising,  mer- 
chants are  buying  more  goods,  farmers  more 
land  and  real  estate  speculators  more  lots  and 
houses  than  they  need.  Everybody  is  trying  to 
get  ahead  of  everybody  else.  The  monopoly 
and  forestalling  game  goes  on  at  accelerating 
speed,  until  something  happens  to  cause  a  halt. 
Then,  suddenly,  everybody  wants  to  sell  and 
get  out.  Prices  tumble,  possible  a  panic  oc- 
curs and  then  follow  one,  two  or  three  years 
of  depression  and  recuperation. 

Human  nature,,  remaining  unchanged,  rap- 
idly rising  prices  will  always  mean  extrava- 
gance, recklessness,  over-speculation,  inflation, 


14 

collapse,  remorse.  Periods  of  great  industrial 
activity  and  of  stagnation  and  depression  will 
follow  each  other  in  rapid  succession.  The 
masses  of  the  people  will  become  discontented 
and  rebellious. 

Viewed  from  the  standpoint  of  the  lender 
of  capital,  we  can  see  another  reason  why  in- 
terest rates  should  be  high  when  money  is 
depreciating  in  value.  If  the  depreciation  is  5% 
a  year  the  principal  of  a  debt  is  losing  5%  of 
its  purchasing  power  each  year.  At  such  a 
time  a  rate  of  4%  would  yield  1%  less  than 
nothing  to  the  lender  of  capital.  It  is  evident 
that  the  rate  of  money  interest  should  be  suffi- 
cient not  only  to  make  good  the  shrinkage  in 
the  principals  of  debt,  but  to  return  something 
more  to  lenders. 

This  somewhat  new  theory  of  money  rates 
is  fully  discussed  in  Professor  Irving  Fisher's 
recent  work  on  "The  Rate  of  Interest."  It  is 
now  fully  accepted  by  John  B.  Clark,  J.  Pease 
Norton  and  other  professors  and  economists. 
It  is  the  only  theory  that  fits  the  facts  at  all 
times  and  in  all  places.  It  explains  why  inter- 
est rates  have  been  high,  during  periods  of 
great  gold  production,  and  low  during  periods 
of  low  production.  It  explains  why  interest 
rates  were,  previous  to  1896,  higher  in  silver 
than  in  gold-using  countries. 

It  is  certain  that  interest  rates  have  averaged 
very  high  during  the  last  six  or  eight  years. 


15 

It  is  almost  as  certain  that  they  will  average 
high  (say,  from  5  to  7%  for  time  money)  dur- 
ing the  next  five  or  ten  years.  The  present 
low  rates  may  last  a  few  months  longer,  but 
are  reasonably  certain  to  be  followed  by  con- 
siderably higher  rates  within  a  year  if  not 
within  six  months. 

HIGH     INTEREST     RATES     MEAN     LOWER 
PRICES  FOR  BONDS. 

Men  with  surplus  money  are  always  on  the 
lookout  to  get  as  big  a  yield  as  possible  from 
it.  They  will  not  long  hold  bonds  that  yield 
only  4  or  5%  when  they  can  loan  money  out- 
right at  si  or  6%.  Beyond  question,  the  prices 
of  bonds  depend  mainly  upon  the  rate  of 
interest. 

Because  interest  rates  were  high  and  rising, 
from  1904  to  1907,  the  prices  of  bonds  declined 
during  this  period.  Because  the  rate  of  in- 
terest is  temporarily  low  the  prices  of  bonds 
are  now  rising.  Both  because  the  rate  of  in- 
terest will  soon  begin  to  rise  again  and  because 
there  is  a  tremendous  supply  of  unsold  bonds 
(many  of  them  carried  over  from  1906  and 
1907),  the  present  rise  in  the  prices  of  high- 
grade  bonds  is  likely  to  be  short  lived  and 
very  disappointing  to  the  many  bond  dealers 
who  are  confidently  expecting  several  years 
of  rising  bond  prices  and  prosperity. 

Already  we  see  signs  of  a  turn  in  the  prices 


16 

of  the  highest  grade  bonds.  British  consols, 
although  they  rose  only  5  or  6  points  from 
their  lowest  prices  (from  about  82  to  8yi)  are 
now  slowly  declining  again.  They  are  now 
about  20  points  below  their  high  prices  of  a 
few  years  ago. 

It  is  doubtful  if  our  municipal  and  state 
bonds  will  sell  higher,  at  any  time,  than  they 
are  now  selling.  A  4%  basis  will  probably  be 
about  the  minimum  for  the  next  few  years. 
Within  two  years  we  are  likely  again  to  be  on 
a  4.4%  basis  for  cities — and  a  5  to  6%  basis 
for  the  best  railroad  bonds.  This  means  that 
our  municipalities,  railroads  and  other  corpora- 
tions will  soon  have  to  pay  higher  rates  for 
loans.  This,  in  turn,  means  higher  fixed 
charges  and  increased  expenditures. 

RISING  PRICES  MEAN  HIGHER  OPERATING 

COSTS. 

Rising  prices  and  high  interest  rates  mean 
high  cost  of  operation  and  production  on  rail- 
roads and  other  public-service  corporations, 
and  in  mills  and  mines.  By  increasing  the 
cost  of  living  they  necessitate  high  wages  and 
thus,  again,  necessitate  increased  cost  of  pro- 
duction. As  wages  rise  more  slowly  than 
prices  and  the  cost  of  living,  labor  becomes 
dissatisfied,  inefficient  and  often  turbulent,  dur- 
ing periods  of  rising  prices.  This  fact  increases 
the  burdens  and  troubles  of  corporation  offi- 
cials and  other  producers  and  employers. 


17 

Some  industries  are  free  to  recoup  losses 
from  increasing  cost  of  operation;  others  are 
not.  In  the  fortunate  class  are  most  manufac- 
turers, merchants  and  professional  men.  If,  in 
addition,  they  own  mines,  forests,  land  and 
buildings,  they  are  doubly  fortunate,  for  these 
will  rise  in  nominal  value  as  gold  depreciates. 
If,  besides,  these  owners  of  productive  forces 
have  their  properties  mortgaged  at  low  rates 
of  interest,  they  are  trebly  fortunate.  Their 
debts  will  depreciate  as  the  purchasing  power 
of  gold  declines. 

Railroads  cannot,  as  a  rule,  increase  rates 
except  with  the  consent  of  commissions  or 
legislative  bodies.  This  practically  means  that 
they  cannot  recoup  their  losses  from  increasing 
cost  of  operation,  until  their  situation  becomes 
desperate.  They  suffered  much  from  this  dis- 
ability in  1906  and  1907.  They  are  likely  to 
suffer  far  more  in  the  next  five  years.  The 
effects  will  be  felt  most  by  the  great  trunk 
line  roads  with  their  expensive  terminals  and 
heavy  capitalization.  They  will  be  felt  least 
by  the  roads  in  undeveloped  territory.  Roads 
that  own  mines  or  large  tracts  of  land  will 
benefit  materially  by  their  appreciation. 

Street  railways  will  fare  even  worse  than 
will  the  steam  roads  by  gold  depreciation. 
Relatively,  the  street  railways  expend  more  for 
labor  than  do  the  steam  roads.  They  are, 
therefore,  hit  much  harder  by  rising  wages 


18 

than  are  the  steam  roads.  Besides,  the  oppor- 
tunities for  economies  are  not  so  great  as  with 
the  steam  roads.  The  difficulties  of  raising  fares 
are  also  even  more  difficult  than  in  the  case  of 
steam  roads.  The  future  for  the  stocks  of 
most  street  railways,  and  especially  for  the 
over-capitalized  ones,  is  not  bright.  They  may 
hold  up  well  for  a  year  or  two  longer.  After 
that,  the  slow  but  sure  process  of  increasing 
cost  of  operation  is  likely  to  tell  adversely 
on  the  value  of  their  stocks. 

The  stocks  of  other  public-service  corpora- 
tions— gas,  water,  electric  light,  telephone,  etc., 
companies — will  behave  much  as  will  those  of 
street  railways.  The  prices  of  the  products 
or  services  of  all  of  these  corporations  are 
fixed  by  law  or  custom.  They  can  be  raised 
only  with  great  difficulty.  Unless  invention 
and  cheaper  cost  of  service  can  keep  pace  with 
gold  depreciation  the  net  earnings  of  these 
corporations  will  diminish  towards,  if  not  to, 
the  vanishing  point. 

The  growth  of  some  cities  will,  of  course,  be 
sufficient,  for  several  years,  to  overcome  the 
increasing  cost  of  operation.  As  a  rule,  how- 
ever, the  stocks  of  public-service  corporations 
may  be  expected  to  decline  from  year  to  year. 

I  will  not  attempt  to  discuss  here  the  effects 
of  gold  depreciation  upon  debtors  and  creditors 
and  upon  the  distribution  of  wealth.  Generally 
speaking,  debtors  are  benefited,  and  creditors 


19 

injured,  by  a  depreciating  standard  of  value. 
Wealth  is  distributed  quite  differently  from 
what  it  would  be  under  a  stable  standard  of 
value.  This  different  and  unjust  distribution 
causes  great  dissatisfaction  and  unrest,  which 
shows  itself  in  politics,  religion  and  industry. 
The  indirect  effects  of  this  discontent  upon 
security  values  is  likely  to  be  very  great  in 
the  next  five  years. 


^Increasing    Gold     Supply    and     Stock 
Prices. 

By   MAURICE   L.    MUHLEMAN,    ex-Deputy   Assistant   Treas- 
urer of  the  United  States. 

The  enormous  increase  in  the  world's  pro- 
duction of  gold  and  its  influence  upon 
economic  conditions,  particularly  with  refer- 
ence to  the  future  of  investments  and  specu- 
lation have  been  quite  extensively  discussed  in 
recent  years.  It  may  seem  to  those  who  have 
followed  the  discussion  that  the  subject  has 
been  fully  covered;  but  the  factor  of  reserves, 
to  which  I  merely  referred  in  my  paper  in- 
cluded in  the  "gold  symposium"  conducted  by 
the  editor  of  Moody's  Magazine  in  December, 
1905,  has  not,  in  my  opinion,  received  adequate 
attention. 

The  function  performed  by  the  yellow 
metal,  of  furnishing  a  medium  of  exchange, 
important  as  this  is,  must  be  regarded  of  far 
less  potency  in  economic  influence  than  the 
function  of  serving  as  a  reserve  basis  for 
credits,  which  has  almost  universally  de- 

This   article   was   specially   prepared   for   the    market   letter 
service. 

20 


21 

volved  upon  it  exclusively.  A  review  of  the 
data  bearing  upon  this  point  may  prove  useful 
in  determining  the  probable  course  of  events. 
As  introductory  thereto,  the  statistics  of  pro- 
duction and  distribution  of  gold  should  be 
presented. 

It  will  be  recalled  that  during  the  decade 
from  1878  to  1887  the  average  annual  product 
was  about  105  millions;  thus  the  addition  to 
the  monetary  stock  was  practically  negligible 
in  amount,  after  making  allowances  for  indus- 
trial consumption,  losses  and  hoarding  in  the 
Orient  (Egypt,  India,  China,  etc.).  It  was 
hence  natural  that  a  substantial  part  of  the 
world's  population  should  turn  to  silver  to 
supply  the  growing  monetary  needs.  Inade- 
quate reserves  tended  to  retard  development. 

In  the  following  decade  (1888  to  1897)  tne 
average  production  was  161  millions,  the 
greater  part  of  the  increase  occurring  in  the 
latter  half  of  the  period.  The  movement  toward 
silver  ceased;  a  number  of  nations  adopted 
the  gold  standard  in  place  of  the  silver  or 
bimetallic;  and  they  were  enabled  to  acquire 
the  necessary  yellow  metal  owing  to  the  coin- 
cident falling  off  in  ordinary  demand  due  to 
the  slow  recovery  from  the  general  depression 
following  the  financial  crisis  of  1893. 

In  the  decade  closing  with  the  last  year  (1898 
to  1907)  the  average  annual  output  more 
than  doubled,  reaching  the  unprecedented  fig- 


22 

ure  of  325  millions;  and  this  notwithstanding 
the  interruption  of  production  in  1899  to  1901, 
due  to  the  Boer  War,  which  prevented  the 
disemboweling  from  the  earth  of  probably  200 
millions.  It  is  to  the  economic  developments 
of  this  decade  that  attention  should  be  directed ; 
the  depression  referred  to  above  reached  its 
end  in  1897,  the  period  of  low  ebb  in  prices  and 
in  enterprise. 

The  available  statistics  indicate  that  of  the 
3,250  millions  of  gold  produced  in  the  decade, 
approximately  2,300  millions  were  made  avail- 
able for  monetary  purposes;  950  millions  were 
diverted  to  the  arts  and  into  hoards.  Of  the 
monetary  gold  thus  added  1,100  millions  may 
be  assigned  to  Europe,  850  millions  to  the 
United  States,  350  millions  to  the  rest  of  the 
world.  Estimating  the  world's  monetary  stock 
at  the  end  of  1907  at  7,000  millions,  the  in- 
crease has  been  nearly  49%.  Europe's  supply 
increased  nearly  37^%,  that  of  the  United 
States  about  112%;  the  rest  of  the  world 
gained  nearly  46%.  Europe  and  the  United 
States  together  have  over  84%  of  the  total; 
they  have  a  little  less  than  one-third  of  the 
population,  but  control  fully  So%  of  the  im- 
port trade  of  the  world. 

Our  purpose  requires  the  consideration  of 
the  manner  in  which  the  added  gold  was  used, 
to  facilitate  credit  and  capital  supplies  to  the 
renascent  enterprise  of  the  civilized  world, 


23 

emerging  from  its  semi-paralysis  after  1897. 
It  was  necessarily  made  available  to  industrial 
and  commercial  development  through  bank 
reserves.  The  absence  of  correlative  demand 
for  money-means  prior  to  1898  caused  the  ab- 
normally low  discount  rates  which  prevailed 
for  several  years  in  all  the  financial  centers  of 
the  world.  When  the  stimulus  of  the  "renais- 
sance" was  felt  rates  rose,  reaching  a  maximum 
in  1899-1900,  when,  owing  to  the  check  upon 
South  Africa's  production,  demands  had  tem- 
porarily outrun  supplies.  Thereafter  rates 
adjusted  themselves  generally  to  a  higher  level. 

It  is  to  be  noted  here  that  commodity  prices 
advanced  and  prices  of  securities  having  fixed 
income  values  declined;  indicating  a  cheapen- 
ing of  money  notwithstanding  the  higher 
current  rates  recorded;  upon  the  other  hand, 
securities  having  an  indeterminate  income  rate 
rose  materially  in  the  markets,  in  a  certain 
degree  speculatively.  This  was  the  general 
trend,  although  violent  fluctuations  took  place ; 
and  some  noteworthy  abberations  are  observed 
which  are  referable  to  the  manner  in  which  the 
reserve  gold  was  employed. 

It  is  essential  to  have  continuously  in  mind 
that  money-means  include  bank-credits,  the 
instrumentality  by  which  liquid  capital  is  pro- 
vided; the  supply  of  actual  money,  in  the  com- 
mon use  of  the  term,  except  so  far  as  it  relates 
to  reserves,  is  of  subordinate  importance;  de- 


24 

posits  and  credit-notes,  and  the  basis  upon 
which  they  rest,  constitute  the  factors  of  para- 
mount influence.  Of  the  1,100  millions  of  gold 
gained  by  the  countries  of  Europe  not  more 
than  one-half  went  into  reserves;  of  the  great 
gain  recorded  for  the  United  States  reserves 
took  about  500  millions.  The  gold  which  went 
into  general  circulation  was  obviously  deprived 
of  its  full  efficiency. 

It  is  the  degree  of  efficiency  with  which  gold 
is  utilized  that  tends  to  regulate  the  provision 
of  money-means  and  their  cost;  the  salient 
elements  in  financial  operations.  We  are  with- 
out accurate  or  complete  data  whereby  this  can 
be  measured;  yet  as  regards  Europe  and  the 
United  States  we  have  sufficient  to  enable  us 
to  approximate.  From  these  it  is  safe  to  con- 
clude that  the  gold  reserves  in  Europe  are 
about  twice  as  large  in  ratio  as  are  those  of 
the  United  States,  and  that  the  expansion  of 
credits  in  the  decade  has  been  very  much  less, 
both  actually  and  relatively.  The  statistics  of 
note  issues  in  Europe  are  particularly  inter- 
esting ;  the  increase  in  the  decade  has  been  800 
millions,  with  an  increase  of  the  gold  reserves 
of  250  millions ;  the  ratio  of  gold  has  been  main- 
tained at  very  nearly  50%. 

The  available  data  for  the  United  States 
show  an  expansion  of  credits  of  banks  other 
than  savings  institutions  of  over  200%,  an  in- 
crease of  gold  reserves  of  only  100%.  The 


25 

ratio  of  gold  held  against  our  credit  currency 
was  in  1907  only  21.8%;  less  than  half  the 
ratio  in  all  Europe. 

The  operations  of  the  systems  of  the  four 
leading  nations  in  the  financial  world  will 
throw  further  and  more  satisfactory  light  upon 
the  events.  Widely  varying  in  constitution  as 
they  are,  the  inter-action  and  inter-dependence 
are  nevertheless  marked.  Great  Britain,  be- 
cause of  the  vast  aggregation  of  capital,  is  the 
chief  source  of  supply;  the  United  States,  with 
almost  boundless  natural  resources  and  energy 
stands  first  in  the  line  of  demand.  British 
operations  are  carried  on  most  largely  by 
checks  upon  bank  credits ;  in  the  United  States 
this  is  so  in  less  degree;  Germany  and  France 
use  coin  and  bank-notes  much  more  extensive- 
ly. This  importance  of  the  reserve  is  the  same 
whether  it  stands  against  check-money  or 
notes. 

France  conducts  her  operations  through  a 
central  bank  under  Government  supervision; 
it  is  essentially  a  currency  bank,  its  deposits 
(other  than  public  moneys)  being  less  than 
one-tenth  of  its  note-issues.  Respecting  re- 
serves the  restriction  is  that  the  bank  must 
hold  sufficient  coin  so  that  it  shall  not  fail  to 
pay  its  notes  and  deposits  on  demand;  the 
remaining  assets  are  chiefly  short-time  com- 
mercial paper  re-discounted  for  other  banks; 
it  may  use  large  silver  coin  in  payments  (the 


26 

bimetallic  law  prevails),  yet  in  fact  its  gold 
holdings  are  considerably  more  than  50%  of  its 
demand  liabilities.  In  the  past  decade  the  gold 
increased  to  160  millions,  note-issues  less  than 
200  millions.  The  margin  of  expansion  is  con- 
sequently very  considerable. 

Other  French  banks  carry  much  larger  de- 
posits than  the  central  bank,  but  with  relatively 
small  reserves,  and  part  of  these  are  held  in 
the  great  bank;  the  ratio  of  "cash  in  hand 
and  in  the  bank"  is  probably  not  in  excess  of 
10% ;  but  with  the  right  to  rediscount  paper 
immediately  the  other  banks  have  the  means 
to  restore  reserves  quickly  from  the  central 
bank's  stock.  The  mechanism  has  operated  so 
that  the  discount  rate  in  Paris  was  for  a  period 
of  nearly  seven  years  from  1900  maintained 
without  change  at  3%,  an  inestimable  boon  to 
all  interests.  Such  expansion  as  was  neces- 
sary having  been  accompanied  by  a  corre- 
sponding growth  of  gold,  the  conditions  re- 
mained stable,  until  our  panic  caused  disturb- 
ance; yet  this  brought  about  a  rise  in  discount 
rates  to  only  4%. 

Germany  has  also  a  Government-supervised 
central  bank,  chiefly  a  currency  bank;  yet  its 
deposits  are  relatively  larger  than  in  the  case 
of  the  French  bank.  It  may  issue  additional 
notes  to  meet  demands  subject  to  a  5%  tax, 
without  reference  to  its  reserves.  The  gold 
ratio  is  hence  usually  lower  than  in  France, 


.       27 

3°  to  35%  being  the  recent  average.  Here  also 
the  other  banks,  with  very  extensive  deposit 
accounts,  carry  much  of  their  reserve  in  the 
central  institution,  having  cash  on  hand  only  5 
to  6%.  The  margin  of  expansion  except  sub- 
ject to  the  tax  is  narrow;  hence  discount  rates 
fluctuate  very  considerably,  the  record  for  the 
period  of  absolute  stability  in  France  referred  to, 
showing  a  range  from  3  to  7%,  with  21 
changes;  the  panic  pressure  of  1907,  causing 
a  net  loss  of  28  millions  of  gold,  brought  the 
rate  to  7%%. 

The  German  mechanism  in  theory  provides 
for  automatic  expansions  and  contractions  of 
notes  and  credits  by  means  of  the  tax;  this 
doubtless  serves  to  restrain  inordinate  specu- 
lation. Yet  it  does  not  obviate  a  fierce  struggle 
to  maintain  gold  reserves  which  manifestly 
operates  to  tax  all  business  interests.  How- 
ever satisfactory  the  system  may  have  worked 
in  aiding  the  development  of  the  Empire,,  there  ^ 
are  evident  defects:  the  supply  of  gold  in  actual 
circulation  is  much  larger  than  need  be,  and 
the  strain  upon  reserves  causes  undesirable 
instability. 

In  England  a  privately-controlled  central 
bank  regulates  a  system  in  which  numerous 
powerful  institutions  are  dominant  factors. 
The  note-issues,  covered  partly  by  coin  and 
partly  by  bonds,  are  not  large;  deposits  of  the 
central  bank,  while  ordinarily  less  than  twice 


28 

the  note-issues  in  amount,  are  only  a  fraction 
of  those  of  the  other  banks.  Yet  the  latter  hold 
relatively  small  cash  reserves,  probably 
5%,  depending  upon  the  great  bank  there- 
for; the  bulk  of  its  deposits  consists 
of  these  reserves;  it  endeavors  to  main- 
tain a  40%  ratio  against  these  liabilities, 
but  the  margin  is  frequently  narrow.  Hence 
discount  rates  ranged  between  2^  and  6%  dur- 
ing the  seven  years  from  1900,  and  reached  7% 
under  the  panic  pressure  of  1907. 

Expansion  appears  in  the  deposits  of  the 
other  banks,  undeterred  by  reserve  require- 
ments. Thus  the  liabilities  grew  in  the  past 
decade  fully  600  millions  for  the  United  King- 
dom, yet  the  entire  stock  of  gold  increased 
only  100  millions,  and  not  all  of  this  accrued 
to  reserves.  A  struggle  for  gold  manifests 
itself  first  in  the  British  center;  the  mechan- 
ism enables  its  bank  to  shift  demands  upon 
other  points,  but  this  is  done  at  largely  in- 
creased charges  for  money,  taxed  upon  busi- 
ness. 

The  effect  of  the  panic  upon  the  three  great 
banks  is  treated  in  great  detail,  showing  the 
changes  week  by  week,  in  pages  189-197  of 
my  work  "Monetary  and  Banking  Systems," 
just  published. 

In  the  United  States  the  monetary  affairs 
are  conducted  by  about  20,000  individual 
banks  under  indifferently  effective  govern- 


29 

mental  supervision;  they  create  credits  under 
very  lax  reserve  restrictions,  excepting  only 
the  few  national  banks  in  central  reserve 
cities  (New  York,  Chicago  and  St.  Louis). 
Those  in  the  chief  center  undertake  regulation 
in  a  measure,  but  the  results  are  not  satisfac- 
tory. The  great  mass  of  the  institutions  are  in- 
adequately provided  with  cash  reserves,  be- 
cause of  the  permitted  inordinate  expansion  of— ^ 
credits.  The  greater  part  of  the  nominal  re- 
serves is  loaned  to  banks  in  the  centers;  much 
of  the  cash  reserve  consists  of  Government  and 
bank  notes;  hence  the  credits  are  in  a  large 
measure  supported  by  credits,  instead  of  by 
gold.  Even  this  conglomerate  cash  reserve  de- 
clined in  relation  to  deposit  liabilities  from 
18.8%  to  11.3%  in  the  past  decade. 

Conditions  of  demand  require  the  provision 
of  greater  supplies  cf  cash  as  well  as  credit 
means,  in  the  latter  half  of  each  year;  but  the 
practice  causes  the  major  part  of  each  year's 
added  supply  to  continue  in  use;  the  excess  is 
concentrated  in  the  center,  causing  congestion 
there  during  the  period  of  slackened  demand; 
when  the  needs  recur  the  imperative  recall  of 
the  funds  causes  stringency;  sometimes  creat- 
ing panic.  We  have  thus  a  record  cf  instability 
of  money-rates  not  found  elsewhere  in  the 
world,  manifested  principally  in  the  rates  for 
"call-loans"  annually  for  considerable  periods 
below  2%,  and  at  other  periods  rising  frequent- 


30 

ly  to  1 00%  and  more;  ordinary  loans  show  fluc- 
tuations equally  vicious  although  not  so  vio- 
lent; and  rates  at  interior  points,  while  fluc- 
tuating less,  are  at  materially  higher  figures 
than  they  should  be,  because  of  the  artificially 
created  dearth  of  means  there. 

The  alternating  "feast  and  famine"  in  the 
supply  of  money  means  as  indicated  by  the 
rates  are  obviously  due  to  the  almost  unre- 
strained expansion  attributable  partly  to  the 
wretched  currency  system,  partly  to  the  irra- 
tional reserve  requirements.  The  excessive 
means  existing  in  the  first  half  of  each  year  are 
employable  only  in  the  speculative  field;  the 
absurdly  low  rates  incite  inordinate  specula- 
tion; the  violent  fluctuations  in  money  rates 
cause  violent  fluctuations  in  the  security  mar- 
kets; inflation  of  prices,  reactions,  periodical 
crises,  scrambles  for  gold ;  these  conditions  are 
not  only  pernicious  to  the  security  markets, 
but  detrimental  to  all  interests.  It  is  clear  that 
approximately  stable  money  rates  are  impera- 
tively needed;  that  changes  in  our  currency 
and  reserve  laws  would  bring  this  about. 

France  alone  of  the  four  great  nations  shows 
a  rational  observance  of  the  principles  of  re- 
serves; and  there  alone  money  rates  are  fairly 
stable;  in  the  United  States  conditions  are  by 
far  the  worst,  the  credit-structure  being  com- 
parable to  an  inverted  pyramid,  that  topples 
with  very  little  pushing.  Obviously  there  has 


31 

been  for  some  time  past  and  is  now  a  need  for  a 
broadening  of  the  yellow  metal  base  for 
credits;  most  countries  of  the  world  require  it 
unless  a  violent  contraction  of  credits  and  a 
suspension  of  development  are  to  take  place. 
Had  the  world's  banking  institutions  operated 
under  adequate  reserve  regulations,  the  in- 
creased output  of  gold  would  have  caused  far 
less  disturbance. 

There  are  indications  that  the  question  is 
about  to  receive  serious  attention;  corrective 
measures  are  under  discussion  here,  in  London, 
and  in  Berlin ;  if  carried  out  these  will  naturally 
bring  about  an  added  demand  for  gold  that  will 
absorb  the  growing  supply  for  some  time  to 
come.  This  will  tend  to  neutralize,  at  least  in 
part,  the  tendency  to  decline  in  its  purchasing 
power;  but  a  far  greater  benefit  will  accrue  to 
the  world  through  the  greater  stability  in 
money  rates  that  more  rational  gold  reserves 
will  bring  about.  Not  only  will  ordinary  busi- 
ness interests  reap  a  distinct  advantage,  but 
security  markets  will  be  influenced  in  a  much 
greater  degree  by  value,  actual  or  prospective. 
Much  of  the  detrimental  character  of  specula- 
tion will  be  eliminated. 


NOTE. — In  order  to  make  Mr.  Muhleman's  article  thor- 
oughly comprehensive,  his  former  article  referred  to  in  the  first 
paragraph  above  is  reproduced,  by  permission,  and  appears  on 
the  next  page.  T.  G. 


Gold  Supply  Not  Too  Great. 

Reserve  Demands  Will  or  Should  Absorb  It — 
$3*500,000,000  of  "Uncovered  Paper  Money" 
Should    Be    Protected— Bank    De- 
posits Inadequately  Secured. 

By   MAURICE   L.   MUHLEMAN.* 

Before  proceeding  to  the  consideration  of  the 
question  of  the  influence  of  the  rapidly  increas- 
ing gold  supply,  it  is  proper  to  say  that  the 
table  submitted,  presenting  the  volume  of 
monetary  gold  for  the  purpose  of  comparison 
with  the  fluctuation  of  prices,  wages  and  inter- 
est rates,  is  unsatisfactory  for  the  reason  that 
it  limits  the  statement  of  the  supply  of  money 
to  gold,  whereas  silver,  certainly  for  the  period 
prior  to  1873,  and  in  a  diminishing  degree  only 
since  that  date,  was  endowed  with  full  money 
functions ;  hence  if  the  volume  of  money  is  an 
important  factor,  the  deductions  from  the  table 
will  in  all  probability  be  erroneous.  The  same 
may  be  said  respecting  the  omission  to  include 
paper  representatives  of  money,  the  use  of 

*  Reproduced  (by  permission)  from  Moody's  Magazine  for 
December.  1905,  and  uged  as  a  supplement  to  Thomas  Gibson's 
Special  Letter  of  June  18,  1908,  in  which  Mr.  Muhleman  dis- 
cusses the  effect  of  the  increasing  gold  supply  upon  stock  prices. 

32 


33 

which  unquestionably  potentially  influences 
the  conditions  that  cause  price  fluctuations. 
Moreover  the  volume  of  gold  of  the  entire 
world,  is  compared  with  prices,  wages  and  in- 
terest rates  for  the  United  States  alone;  it  is 
not  only  conceivable,  but  demonstrable,  that 
circumstances  influencing  only  the  United 
States,  have  been  potential  in  causing  fluctua- 
tions there,  in  very  large  measure  irrespective 
of  the  supply  of  gold  in  the  rest  of  the 
world. 

Coming  now  to  the  specific  topic  for  discus- 
sion, it  is  obvious  that,  as  gold  has  been  made 
the  chief,  and  in  the  most  important  states  the 
sole,  medium  of  exchange  and  measure  of 
values,  a  very  marked  change  in  prices,  wages 
and  interest  may  be  looked  for  within  a  decade, 
unless  the  additional  supply  is  offset  by  new 
demands.  Other  channels  for  the  employment 
of  the  surplus  of  gold  have  been  or  will  be  sug- 
gested as  likely  to  avert  a  radical  disturbance 
in  the  markets;  I  confine  myself  to  the  one  of 
reserves. 

Regarding  the  adaptation  and  adjustment  of 
our  artificial  or  conventional  methods  to  the 
changing  natural  conditions  as  a  primary  obli- 
gation of  the  civilized  state,  no  utilization  of 
the  added  gold  supply  to  the  promotion  of  the 
well-being  of  the  race  would  be  more  rational 
than  its  employment  in  fortifying  the  reserves 
of  financial  institutions.  No  one  who  has  given 


34 

the  subject  more  than  merely  superficial  con- 
sideration will  question  the  assertion  that  such 
strengthening  is  necessary  if  we  would  protect 
the  credit  structure  adequately  against  the 
periodic  dangers  to  which  it  is  exposed;  dan- 
gers which  so  frequently  bring  about  disasters, 
the  effects  of  which  are  felt  for  a  decade,  during 
which  a  very  substantial  portion  of  the  race 
is  subjected  to  misery,  inevitably  retarding 
the  progress  of  civilization. 

We  are  informed  by  statisticians  that  the 
volume  of  "uncovered  paper  money"  is  approx- 
imately $3,500,000,000;  we  know  that  a  consid- 
erable number  of  states  are  struggling  with  a 
depreciated  paper  standard.  Moreover,  it  is 
well  known  that  in  estimating  the  uncovered 
paper  volume  the  specie  in  bank  is  all  used  to 
offset  note  liabilities,  leaving  nothing  against 
deposit  or  other  credit  liabilities;  and  a  sub- 
stantial part  of  the  covering  specie  consists  of 
silver.  Here,  then,  is  a  broad  field  for  the  em- 
ployment of  the  increasing  gold  product,  suffi- 
cient to  absorb  the  available  output  for  a 
decade  or  more,  which  governments  should 
recognize. 

To  illustrate  concretely:  In  the  United 
States  we  should  have  some  200  millions  more 
of  gold  in  place  of  our  "greenbacks,"  150 
millions  as  a  reserve  against  our  silver  issues; 
our  banks  should  actually  hold  their  prescribed 
reserves  instead  of  being  permitted  to  loan 


35 

them  out  in  part,  which  would  require  a  further 
provision  of,  say,  200  millions;  our  trust  com- 
panies are  notoriously  deficient  in  this  respect 
and  should  be  called  upon  to  fortify  themselves, 
which  would  give  room  for  a  further  200 
millions.  In  London  the  joint  stock  banks  ac- 
tually carry  such  insignificant  cash  reserves 
against  their  2,300  millions  of  deposits,  that 
there  is  an  almost  continuous  protest  against 
the  dangerous  practice:  there  a  very  large 
amount  of  gold  could  and  should  be  gathered 
to  assure  stability  which  to-day  exists  largely 
only  in  the  imagination,  and  only  fortuitous 
circumstances  avert  trouble.  At  the  moment 
there  comes  to  hand  another  protest  from  the 
London  Statist  against  this  disregard  of 
conservative  regulations,  instancing  the  pres- 
ent stringency  there  as  a  result  of  the  prac- 
tice. 

It  is  not  necessary  to  furnish  a  complete 
catalogue  of  the  illy-fortified  financial  institu- 
tions; those  cited  above  prove  the  need  and 
this  is  sufficiently  important  to  merit  the  per- 
sistent attention  of  the  best  thought  of  the  day 
in  governmental  and  financial  circles.  It  may 
have  been  excusable  in  the  period  of  slender 
gold  output  to  permit  reserves  to  shrink;  that 
excuse  is  now  no  longer  permissible;  and 
while  there  are  no  doubt  other  channels  in 
which  the  extraordinary  supply  of  yellow 
metal  can  be  used,  none  would  so  readily  pre- 


36 

vent  inordinate  market  flucutations,  at  the  same 
time  tending  to  avert  the  disasters  following 
inadequate  reserves,  which  so  frequently  in- 
terfere with  the  steady  progress  in  our 
economic  evolution. 


Review   of  the  World's   Gold   Supply. 

By   ARTHUR   SELWYN-BROWN,    E.M.;    M.A.;    B.Sc.,    Con- 
sulting   Mining    Engineer. 

Mankind  has  been  interested  in  gold  and 
gold  mining  since  the  dawn  of  history.  Man 
had  scarcely  emerged  from  the  Neolithic,  or 
Stone  Age,  before  being  attracted  to  gold. 
With  his  remains,  found  in  various  parts  of 
Europe  in  caves  and  earth  mounds,  crude 
gold  ornaments  are  not  infrequently  dis- 
covered. By  charting  on  paper  the  va- 
rious sites  on  which  such  gold  orna- 
ments have  been  found,  and  noting  the 
other  articles  found  accompanying  them,  it  is 
possible  to  locate  the  primitive  gold-mining 
centers  of  Europe,  and  learn  the  extent  and 
nature  of  the  barter  carried  on  between  the 
tribes  dwelling  near  the  gold  area  and  tribes 
living  at  remote  places.  Thus  we  learn  of 
the  introduction  of  gold  into  commercial 
transactions. 

The   earliest  written   accounts  of  gold  are 

This    article   was   specially  prepared    for   the   market   letter 
•ervice. 

37 


38 

in  the  Vedas  of  Brahmins  of  India  which 
were  composed  about  5000  B.  C. 

The  Egyptians  and  Phoenicians  coined 
gold,  and  the  Romans  learned  by  experience 
the  economic  changes  induced  by  the  abund- 
ance or  scarcity  of  gold  when  that  metal  plays 
an  important  part  in  a  national  currency.  The 
history  of  no  other  metal  possesses  more 
human  interest  than  that  of  gold.  Through- 
out the  ages  what  terrible  tragedies  have  been 
enacted  in  the  world's  remote  corners  in  the 
exploiting  of  new  gold  fields!  What  ghastly 
crimes  have  been  committed  through  the  lust 
for  gold!  It  was  the  greed  for  gold  that 
spurred  the  Spanish  Conquistadores  to  their 
wonderful  deeds  in  developing  Mexico  and 
South  America.  It  was  the  same  incentive 
that  led  to  the  development  of  California  and 
the  West. 

*  When  the  tremendous  influence  gold  has 
exerted  on  society,  is  still  exerting  on  society, 
and  is  destined  to  exert  in  even  more  numer- 
ous ways  than  hitherto,  is  appreciated,  it  is 
not  surprising  that  some  thinkers  are  moved 
to  believe  in  an  early  exhaustion  of  the 
world's  sources  of  supply.  Scarcity  of  gold 
scares  have  been  raised  at  various  intervals 
since  the  earliest  times.  They  have  not  been 
uncommon  in  recent  years,  and  lately  there 
has  been  a  tendency  in  some  quarters  to  un- 
duly emphasize  the  imminent  dangers  threat- 


39 

tned  by  an  overproduction  of  gold.  It  is 
proposed  in  this  article  to  cursorily  review  the 
gold  production  of  the  past  and  present,  and 
to  indicate  the  probable  course  of  production 
in  the  near  future. 

EARLY    GOLD   SUPPLIES. 

The  world's  gold  supplies  from  the  earliest 
times  down  to  the  discovery  of  America  were 
intimately  connected  with  the  cheapness  of 
human  life.  Gold  mining  was  carried  on  by 
slave  labor.  The  value  of  gold,  consequently, 
varied  with  the  condition  of  the  slave  markets. 
It  became  abundant  when  slaves  were  nu- 
merous. The  Roman  historians  tell  us  of  the 
great  wealth  in  gold  of  great  historical  char- 
acters; but  it  should  be  remembered  that  the 
quantity  of  gold  possessed  by  the  peoples  of 
ancient  times  was  insignificant  when  com- 
pared with  the  stocks  of  gold  in  the  world 
to-day.  But  the  value  of  gold  in  ancient  times 
was  much  greater  than  it  is  to-day.  The  high 
ratio  of  value  to  quantity  appears  to  have 
fluctuated  only  within  comparatively  narrow 
limits  down  to  the  beginning  of  the  sixteenth 
century.  It  is  estimated  that  the  stocks  of 
gold  in  Europe  at  the  time  of  the  discovery  of 
America  did  not  exceed  $225,000,000.  Asia 
possessed  gold  valued  at  $1,500,000,000  in 
1492-1500. 

The  Spanish  Conquistadores  flooded  Europe 


40 

with  gold  taken  from  the  Peruvians  and 
Aztecs.  The  world's  gold  producing  indus- 
tries passed  to  Anglo-Saxon  hands  when 
Spain  withdrew  from  America.  Since  that 
time,  it  may  be  said  that  the  gold  production 
has  increased  proportionately  to  the  demand 
for  it;  or,  in  other  words,  it  has  increased, 
comparatively  speaking,  with  the  populations 
of  the  great  commercial  nations.  The  sphere 
of  its  usefulness  has  also  been  greatly  ex- 
tended. 

GOLD  PRODUCTION  IN  RECENT  TIMES. 

As  gold  is  the  standard  of  value  of  the  prin- 
cipal nations  to-day,  its  abundance  or  scarcity 
is  of  vital  importance.  The  stability  of  the 
world's  money  depends  upon  the  augmenta- 
tion of  the  gold  supply  in  proportion  to  the 
commercial  demand  for  the  metal.  A  scar- 
city of  gold  or  too  great  an  abundance  would 
seriously  interfere  with  the  welfare  of  a  large 
part  of  the  human  race.  Few  statistics,  con- 
sequently, are  more  valuable  and  afford  more 
interesting  studies  than  those  recording  the 
accumulation,  annual  production  and  circula- 
tion of  gold. 

In  Table  I.  the  production  of  gold  from  the 
discovery  of  America  to  the  end  of  1907  is 
given.  The  first  three  lines  give  the  aggre- 
gate yearly  production  for  periods  of  28,  24 
and  1 6  years  respectively.  For  the  period  1561- 


41 

i8oo  the  value  of  the  gold  mined  is  given  for 
intervals  embracing  20  years.     From  1801  to 

1850  the  figures  are  for  lo-year  periods.   From 

1851  to  1880  the  annual  production  is  given. 
These  figures  were  prepared  chiefly  by  Dr.  A. 
Soetbeer.     From  1881  to  the  end  of  1907  the 
figures  are  taken  from  the  "Mineral  Industry." 

TABLE   I.— PRODUCTION    OF  GOLD    FROM   THE    DIS- 
COVERY  OF   AMERICA  TO    1850. 

No. 

Period.  Value.  Years. 

1493-1520 ..    ..  $107,836,848  28 

1521-1544 114,102,912  24 

1545-1560 87,305,536  16 

1561-1580 90,835,080  20 

1581-1600 96,870,400  20 

1601-1620 113,149,960  20 

1621-1640 110,227,320  20 

1641-1660 116,467,680  20 

1661-1680 122,974,600  20 

1681-1700 142,961,844  20 

1701-1720 167,875,680  20 

1721-1740 253,389,080  20 

1741-1760 326,831,120  20 

1761-1780 275,970,920  20 

1781-1800 236,257,840  20 

1801-1810 118,048,000  10 

1811-1820 75,998,160  10 

1821-1830 94,397,940  10 

1831-1840 135,722,280  10 

1841-1850 363,609,260  10 

TABLE  II.— GOLD   PRODUCTION   1851-1907. 

1851 $67,600,000  1880 $106,600,000 

1852 132,800,000  1881 103,102,000 

1853 155,500,000  1882 102,000,000 

1854 127,500,000  1883 95,400,000 

1855 135,100,000  1884 101,700,000 

1856 147,600,000  1885 108,400,000 

1857 133,300,000  1886 106,000,000 

1858 124,700,000  1887 105,775,000 

1859- 124,900,000  1888 110,197,000 


42 

Table  II.  (Continued). 

1860 119,300,000  1889 123,489,000 

1861 113,800,000  1890 118,848,700 

1862 107,800,000  1891 130,650,000 

1863 107,000,000  1892 146,292,600 

1864 111,000,000  1893 158,437,551 

1865 120,000,000  1894 182,509,283 

1866 121,000,000  1895 198,995,741 

1867 104,000,000  1896 211,242,081 

1868 109,700,000  1897 237,833,904 

1869 106,200,000  1898 287,327,033 

1870 106,900,000  1899 311,505,947 

1871 107,000,000  1900 258,829,703 

1872 99,600,000  1901 260,877,429 

1873 96,200,000  1902 298,812,493 

1874 90,800,000  1903 329,475,401 

1875 97,500,000  1904 350,088,253 

1876  . .    . .    . .  103,700,000  1905 379,635,413 

1877 114,000,000  1906 405,060,249 

1878 119,000,000  1907 412,622,136 

1879 109,000,000 

It  will  be  noticed  that  the  average  annual 
production  in  the  period  1493-1520  was  a  little 
over  $3,800,000.  There  was  then  a  steady  in- 
crease right  through  to  the  present  time. 

In  studying  the  figures  it  is  well  to  bear  in 
mind  that  the  amount  of  gold  produced  in  any 
given  period  largely  depends:  (i)  On  the 
amount  of  capital  invested  in  mining;  (2)  the 
richness  of  the  developed  mines  at  that  period ; 
(3)  on  the  comparative  profits  derived  from 
gold  production.  Periods  of  extraordinary 
production  may  be  noticed  in  several  parts  of 
of  the  tables  here  given.  In  each  case  they 
may  be  explained  by  the  activity  of  miners 
in  developing  newly  found  alluvial  gold  fields 
or  the  mining  of  a  great  bonanza  at  one  or 
more  of  the  leading  producing  centers,  f  he 


43 

large  expansion  between  1601  and  1810  was 
mainly  due  to  operations  in  South  America 
and  Mexico.  The  increase  shown  between 
1841  and  1850  was  caused  by  the  working  of 
the  California  placers.  About  1889  the  results 
of  the  development  of  the  Indian,  South  Afri- 
can and  certain  Australian  and  American  min- 
ing fields  commenced  to  increase  the  gold 
production.  A  progressive  increase  is  thence 
noticeable  right  up  to  the  present  time. 

With  the  view  of  indicating  the  relative  im- 
portance of  the  principal  gold  mining  countries 
in  adding  to  the  world's  gold  supplies  Table 
III.  has  been  compiled. 

TABLE  III.— GOLD  PRODUCTION  OF  LEADING  COUN- 
TRIES   IN   MODERN    TIMES. 

United   States 1792-1907  $3,044,426,511 

Australasia 1851-1907  2,697,324,556 

Russia  and  Siberia 1814-1907  1,483,725,685 

Africa 1887-1907  997,413,738 

Colombia 1537-1907  899,710,000 

Brazil 1691-1907  726,424,326 

Mexico 1521-1907  341,620,350 

Canada 1858-1907  257,672,488 

Peru 1533-1907  200,041,395 

Bolivia 1545-1907  199,658,000 

British  India 1884-1907  137,004,359 

Austro-Hungary 1493-1907  75,226,680 

Chile 1545-1907  34,601,000 


Total $11,094,849,088 

Table  III.  gives  the  gold  production  of  those 
countries  where  reliable  mining  statistics  have 
been  kept  since  1493.  It  will  be  noted  that  in 
modern  times  the  United  States  has  produced 
the  greatest  quantity  of  gold.  Australasia  fol- 


44 

lows  close  with  the  enormous  production  since 
1851  of  $2,697,324,556  worth  of  gold. 

The  importance  of  Russia  as  a  producer  of 
gold  is  not  generally  recognized.  It  will  be 
seen  by  Table  III.  that  Russia  has  produced 
since  1814  nearly  half  as  much  gold  as  the 
United  States  has  produced  since  1792.  The 
positions  of  Colombia,  Brazil,  Peru  and  Bo- 
livia should  arrest  attention.  Mining  is  car- 
ried on  in  those  countries  at  present  under 
severe  restrictions  owing  to  the  dearth  of 
labor  and  supplies,  lack  of  capital  and  enter- 
prise. Their  past  production  of  gold,  however, 
should,  in  a  measure,  indicate  their  value  as 
future  sources  of  gold  when  the  demand  for 
gold  and  industrial  conditions  warrant  the 
thorough  exploitation  of  their  gold  deposits. 

GOLD  PRODUCTION  TO-DAY. 
The   gold   production   of   the   continents   is 
given  in  Table  IV.  for  the  years  1903-7.    It 
will   be  noticed  that  there   is  a  steady  total 
increase  each  year. 

TABLE  IV.— THE  GOLD  PRODUCTION— 1903-7. 
1903.  1904.  1905. 

North    America. $105,106,409  $111,192,642  $118,176,774 

Africa 68,036,433       86,249,936     113,226,971 

Australasia     .     .     89,206,739      87,241,662      85,970,779 
Europe    ....     29,132,342      29,808,900      27,668,111 

Asia 25,134,755      24,839,368      24,446,336 

South    America.     11,348,805        9,255,745       10,069,942 
Other  countries.       1,500,000        1,500,000  76,500 


Totals    .    .     .$329,465,483  $350,088,253  $379,635,413 


45 

Table  IV.  (Continued).       1906.  1907. 

North  America   .  .  $124,335,082  $116,682,667 


Africa    
Australasia 

.     134,804,114     151,363,624 
82,358,207       75,849,349 

Europe 

28,085,462      33,296,415 

Asia             

23,933,670      23,706,026 

South  America          .... 

10,043,714       10,224,055 

Other  countries           .   .    . 

1,500,000         1,500,000 

Totals $405,060,249  $412,622,136 

The  production  is  increasing  in  North  Am- 
erica, Africa  and  Europe.  Decreases  are 
noticeable  in  the  records  of  the  other  conti- 
nents. The  increase  credited  to  Europe  is  due 
chiefly  to  the  successful  treatment  of  Aus- 
tralian and  South  American  refractory  ores  and 
to  the  recovery  of  gold  from  copper,  lead,  zinc 
and  other  metals  in  the  electrolytic  establish- 
ments in  England,  France  and  Germany.  It  is 
not  due  to  any. increase  in  mining  operations 
in  Europe.  Very  little  gold  is  mined  at  present 
in  Europe.  The  decrease  in  the  gold  yield  in 
Australasia  is  due  entirely  to  economic  factors 
and  not  in  any  way  to  the  exhaustion  of  the 
gold  fields.  Notwithstanding  the  immense 
amount  of  gold  Australian  mines  have  yielded 
in  the  past  fifty  years,,  mining  in  Australia, 
Tasmania,  New  Guinea,  New  Zealand  and  the 
surrounding  islands  may  be  said  to  be  in  its 
infancy.  The  gold  yields  of  those  countries 
could  be  stimulated  to  almost  any  degree  by 
the  introduction  of  adequate  capital  and  by 
skillful  mining  methods. 


46 

The  gold  production  in  Asia  is  due  mainly  to 
the  operation  of  the  Indian  mines.  The  lead- 
ing gold  mining  district  in  India  is  at  Kolar, 
in  the  province  of  "Mysore.  The  Chinese  fields 
yield  about  $7,000,000  worth  of  gold  annually. 
Korea,  Formosa,  Japan  and  the  East  Indies 
also  contribute  to  the  Asiatic  production. 

The  world's  gold  output  last  year  amounted 
to  19,958,764  oz.,  valued  at  $412,556,136.  About 
78  per  cent,  of  this  was  contributed  by  the 
Transvaal,  United  States,  Australasia  and 
Russia.  There  was  an  increase  in  production 
in  1907  in  two  of  the  great  producing  countries 
and  a  decrease  in  the  other  two.  The  produc- 
tion in  the  Transvaal  advanced  from  $119,609,- 
373  in  1906  to  $133,352,381  in  1907;  and  that 
of  Russia  from  $22,469,432  in  1906  to  $26,- 
518,253  last  year;  gains  of  11.5  and  18  per 
cent.,  respectively.  On  the  other  hand,  the 
output  of  the  United  States  fell  from  $94,373,- 
800  in  1906  to  $89^198,711  in  1907,  and  that  of 
Australasia  from  $82,358,207  in  1906  to 
$75,849,348  in  1907  ;B  the  losses,  respectively, 
being  5.5  and  7.9  per  cent. 

GOLD  MOVEMENTS  IN  GREAT  BRITAIN  IN 
1907. 

Although  the  industrial  consumption  of  gold 
is  increasing  with  increasing  wealth,  the 
annual  output  of  gold  is  chiefly  coined  and  used 
as  a  basis  for  new  commercial  credits.  The 


47 

world's  gold  market  is  in  London.  It  will  be 
interesting  to  study  in  conjunction  with  Table 
IV.,  giving  the  gold  production  in  1907,  the 
fluctuations  in  the  stocks  and  prices  of  gold 
in  Great  Britain  in  that  year.  According  to 
the  annual  report  of  Messrs.  Pixley  &  Abell, 
of  London: 

"The  year  1907  will  be  memorable  for  the 
financial  crisis  in  the  United  States,  which, 
after  threatening  for  many  months,  became 
dangerous  during  the  last  two  months  of  the 
year,  and  caused  great  disturbance  in  the 
money  markets  of  the  world.  The  bank  rate, 
which  stood  at  6  per  cent,  at  the  beginning  of 
the  year,  was  reduced  to  5  per  cent,  on  Jan. 
17,  to  4-J  per  cent,  on  April  n,  and  to  4  per 
cent,  on  April  25.  It  stood  at  this  level  until 
Aug.  15,  when  the  rate  was  raised  to  4^  per 
cent.  On  Oct.  31,  on  the  commencement  of 
the  panic  in  New  York,  the  rate  advanced  to 
5^  per  cent.,  and  on  the  following  Monday, 
Nov.  4,  to  6  per  cent.  A  further  rise  took 
place  on  Nov.  7  to  7  per  cent.,  a  rate  that  had 
not  been  touched  since  the  year  1870,  and  at 
this  it  remained  until  the  close  of  the  year. 
The  average  for  the  year  was  4.927  per  cent., 
as  compared  with  4.274  per  cent,  in  1906. 

"The  arrivals  of  gold  from  all  quarters 
amounted  to  £55,600,000,  against  £46,000,000 
in  1906  and  £38,567,000  in  1905;  while  the 
total  exports  were  £50,000,000,  as  compared 


48 

with  £43,000,000  in  1906  and  £30,829,000  in 
1905.  The  imports  from  South  Africa  amount- 
ed to  £29,389,000,,  against  £25,713,000  the 
previous  year,  an  increase  of  over  14  per  cent. 

"The  Indian  demand  for  small  gold  bars  was 
again  large,  and  amounted  to  £5,700,000. 
Shipments  were  especially  heavy  during  the 
first  nine  months  of  the. year,  but  the  inquiry 
slackened  later  on  when  the  trade  conditions 
became  unfavorable  owing  to  the  great  drop 
in  the  exchange. 

"The  price  of  gold  remained  at  775.  gd.  until 
the  middle  of  March,  when  it  was  raised  to  775. 
lojd.  to  prevent  the  arrivals  from  being  taken 
by  New  York.  When  this  demand  had  been 
arrested  the  price  fell  once  more,  and  re- 
mained at  the  minimum  until  the  middle  of 
May,  when  the  inquiry  for  Paris  in  repayment 
of  loans  made  to  England  at  the  close  of  1906 
caused  an  advance  to  775.  ioid.  There  were 
no  important  demands  then  until  August, 
when  France  again  became  a  buyer,  and  this 
continued  with  intervals  until  October.  On 
Oct.  28  the  American  demand  began,  and  the 
price  of  gold  rose  to  783.  and  from  then  on 
there  was  no  reduction  of  importance  until  the 
end  of  the  year,  when  the  rate  fell  to  775.  g%d. 
on  the  cessation  of  American  purchases. 

"The  amount  of  gold  bought  by  the  United 
States  in  England  was  about  £15,500,000,  and 
in  addition  they  bought  supplies  from  other 


49 

countries,  so  that  the  total  shipments  during 
November  and  December  from  this  country 
were  nearly  £18,000,000.  The  high  bank  rate 
proved  most  effective  in  attracting  gold  to 
England  to  fill  the  vacancy  caused  by  the 
withdrawals  on  American  account,  and  in  ad- 
dition to  £3,000,000  received  from  France 
under  similar  conditions  to  those  made  at  the 
end  of  1906,  the  bank  received  from  Germany 
nearly  £8,000,000,  besides  large  amounts  of 
Scandinavian  coin. 

"The  exports  to  Argentina  were  again  large, 
and  amounted  to  just  under  £7,000,000. 
Egyptian  requirements  were  also  heavy,  and,, 
in  addition  to  gold  which  was  shipped  from 
India,  also  took  nearly  £4,500,000  from  Eng- 
land. Turkey  also  took  £750,000. 

"Early  in  January  the  India  Council  added 
to  their  holding  in  London  £1,000,000,  but 
released  £1,500,000  later  in  the  year  against 
silver  purchases.  In  November  and  December 
they  released  further  £2,500,000  in  conse- 
quence of  the  falling  off  in  the  demand  for  India 
Council  bills,  and  the  gold  reserve  in  London 
now  stood  £3,650,000  at  the  close  of  the 
year." 

This  account  of  the  movements  in  gold  dur- 
ing a  year  that  will  always  be  prominent  in  the 
world's  financial  history  serves  to  excellently 
illustrate  two  factors  that  are  very  influential 
in  promoting  the  search  for  gold.  The  reader 


50 

will  first  notice  the  universality  of  the  demand 
for  a  share  of  the  latest  gold  production.  Then 
he  will  observe  how  dependent  the  world  is 
upon  the  Anglo-Saxon  peoples  for  their  share 
of  the  newly  mined  gold. 

There  was  a  great  absorption  of  gold  for 
currency  purposes  in  the  early  part  of  1908. 
This  will  be  seen  by  referring  to  Table  VI., 
which  gives  the  estimated  gold  production  for 
the  first  three  months  of  1908,  together  with 
the  gold  held  by  bankers,  in  comparison  with 
the  figures  for  the  corresponding  period  in 
1907. 

TABLE    VI. 

1907.  1908. 

Gold  production $100,683,000     $104,367,000 


Bank  holdings    U.  S.  and 

Europe,   Jan.   1 $3,351,300,000  $3,567,000,000 

Holdings,  April  1 3,400,000,000     3,655,500,000 

Increase..  $48,700,000       $89,500,000 


Gold  not  going  to  banks     $51,983,000       $14,867,000 

The  "Engineering  and  Mining  Journal"  in 
editorially  commenting  on  these  figures  stated 
that,  "In  the  first  quarter  of  1908,  85.8  per  cent, 
of  the  approximate  gold  production  of  the  world 
was  added  to  bank  reserves  and  currency; 
while  14.2  per  cent,  was  absorbed  in  the  arts 
or  served  to  increase  private  stocks.  In  1907, 
the  bank  gains  were  only  48.4  per  cent,  of  the 
gold  production,  51.6  per  cent,  going  elsewhere. 


51 

If  we  go  a  year  further  back,  to  1906,  we  find 
the  proportion  showing  in  bank  reserves  to 
have  been  only  23.1  per  cent.,  76.9  per  cent, 
going  elsewhere.  And  yet  the  first  quarters 
of  1906  and  1907  were  periods  of  extremely 
active  trade,  when  money  was  in  general  de- 
mand. 

"The  general  conclusions  to  be  drawn  from 
these  statements  are  that  a  period  of  great 
financial  stringency  may  coincide  with  one  of 
large  gold  production;  the  crisis  being  the  re- 
sult of  other  causes  than  the  gold  supply.  Fur- 
ther, that  such  a  period  of  stress,  with  conse- 
quent high  interest  rates,  will  draw  out  gold 
reserves  which  have  been  hidden,  or  at  least 
have  not  been  apparent  or  directly  available. 
Finally,  it  is  only  a  repetition  of  former  experi- 
ence that  a  time  of  financial  trouble  is  followed 
by  a  period  of  decided  monetary  ease.  This, 
however,  is  not  the  result  of  the  gold  supply, 
but  rather  of  the  general  withdrawal  of  money 
from  active  and  speculative  use." 

CAPITAL  INVESTED  IN  MINING. 
The  gold  annually  won  from  the  mines 
necessitates  the  expenditure  of  a  large  amount 
of  capital  and  labor.  The  capital  invested  in 
gold  mining  is  enormous.  But,  unfortunately, 
there  are  no  means  at  present  of  adequately 
estimating  it.  A  good  idea,  however,  regard- 
ing the  amount  of  capital  employed  by  British 


52 


investors,  may  be  obtained  by  studying  Table 
V.,  which  gives  the  number  of  mining  com- 
panies registered  in  the  United  Kingdom  dur- 
ing the  25  years  ending  1904,  and  the  amounts 
of  their  nominal  capital.  This  table  was  com- 
piled for  the  "Mining  Journal,"  July  4,  1908,  by 
Edward  Ashmead,  F.  C.  A. 


TABLE    V. — CAPITAL    IN    BRITISH    MINES. 


1880 
1881 
1882 
1883 
1884 
1885 
1886 
1887 
1888 
1889 
1890 
1891 
1892 
1893 
1894 
1895 
1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 


Number  of 
Registrations. 

..  157 

..  217 

..  169 

..  151 

..  148 

..  138 

..  237 

..  269 

..  365 

..  378 

..  236 

..  298 

..  206 

..  210 

..  331 

..  961 

..  857 

..  606 

..  509 

..  559 

..  525 

..  519 

..  417 

..  430 
328 


Nominal 
Capital. 
£11,940,270 
20,848,450 
12,560,800 
14,712,398 
14,952,207 
24,448,951 
29,439,728 
34,002,041 
52,663,400 
41,015,425 
19,796,546 
35,187,125 
19,807,280 
14,725,427 
23,296,361 
107,387,241 
94,419,194 
64,457,583 
55,396,288 
71,687,366 
64,025,292 
46,376,237 
43,144,460 
41,376,052 
26,948,130 


Total  twenty-five  years. 9,221  £984,614,252 

In  referring  to  Table  V.,  Mr.  Ashmead  states 
that: 

"Prior  to  1880  I  found  from  the  'Stock  Ex- 


S3 

change  Year  Book'  that  in  that  year  only  97 
limited  companies,  registered  in  Great  Britain 
for  foreign  and  colonial  mining,  were  recorded 
there  as  then  in  existence.  Of  these  the  larger 
part  are  now  non-existent.  The  same  book 
also  notifies  the  fact  that  in  1880  157  British 
limited  mining  companies  (including  coal)  were 
in  operation.  It  will  thus  be  seen  that  the 
great  stride  made  in  mining  enterprise  takes 
its  rapid  rise  in  the  last  twenty-five  years — 
that  is,  from  1880.  Gold  mining  in  the  Madras 
Presidency  of  India  began  in  1880;  diamond 
mining  (as  regards  English  registered  com- 
panies) in  South  Africa,  the  same  year.  The 
Transvaal  gold  discovery  first  took  a  firm  hold 
on  public  attention  in  1888,  and  about  the  same 
time  other  goldfields  opened  up  their  wealth: 
Queensland  in  1886,  Rhodesia  in  1893,  Western 
Australia  in  1894,  and  Klondyke  and  Yukon 
in  1900.  A  revival  took  place  in  the  Gold  Coast 
mines  also  in  1900,  and  the  Egyptian  Sudan  in 
1903  went  to  work  to  rediscover  and  open  up 
ancient  abandoned  mines.  This  activity  also 
brought  other  mining  districts  abroad  into 
greater  prominence.  Mines  in  Europe,  and  in 
the  United  States  and  Mexico,  especially, 
gained  in  public  interest  in  England  in  late 
years. 

"Table  V.  has  taken  much  time  to  compile, 
and  should  prove  useful  for  permanent  refer- 
ence. It  gives  the  number  of  mining  and  mine 


54 

exploration  companies  registered  in  each  year 
— 1880  to  1904 — and  the  total  nominal  capital  of 
the  same. 

"This  gives  an  average  of  369  companies  and 
£39,384,570  of  nominal  capital  per  annum,  and 
one  company  and  more  than  one  hundred  thou- 
sand pounds  for  each  day  embraced  in  the 
twenty-five  years  under  review. 

"The  record  year  was  1895,  when  961  com- 
panies registered  with  over  one  hundred  and 
seven  million  capital.  The  following  year  (1906) 
was  also  a  great  year  for  new  mining  com- 
panies; Western  Australia  and  South  Africa 
were  both  well  to  the  front  in  these  two  years. 

"The  capital,  as  near  as  I  can  dissect  it,  was 
registered  to  be  applied  as  under: 

Nominal 

Companies.     Capital. 
For    British    home    mining,    in- 
cluding coal  and  iron  2,200     £120,737,077 

For  the  British  Colonies  and  De- 
pendencies,      including       the 

Transvaal 4,716        558,992,988 

For  foreign  parts,  including  the 

United   States 2,305        304,884,187 

Total,  25  years 9,221     £984,614,252 

"American  mining  investments  during  the 
same  period  were  much  more  extensive  than 
the  British." 

OTHER     MEANS     FOR     PROMOTING     THE 
GOLD  YIELD. 

The  annual  investment  of  new  capital  in 
developing  new  mines  and  mining  districts  is, 


55 

probably,  the  most  important  factor  in  promot- 
ing the  production  of  gold.  But  there  are  many 
other  factors.  In  some  districts  severe 
droughts  promote  mining  by:  (i)  drying  up 
rivers  and  streams,  thus  enabling  the  gold  in  the 
sand  in  their  beds  to  be  worked;  and  (2)  by 
forcing  farm  and  pastoral  workers  to  seek 
mining  work. 

In  Australasia  and  other  countries  the  gov- 
ernments offer  bounties,  and  furnish  mining 
appliances,  with  the  view  of  promoting  the  de- 
velopment of  new  mining  districts. 

But  the  most  important  factor  influencing 
gold  production,  after  the  investment  of  new 
capital  in  mines,  is  the  improvement  in  metal- 
lurgical processes  and  mining  methods.  This 
may  take  various  forms.  The  following  will 
be  referred  to: 

Improvement  in  Old  Processes. — The  early 
mines  in  California  and  the  Western  States 
were  chiefly  equipped  with  Mexican  arrastras. 
They  were  slow  in  operation  and  very  ineffi- 
cient in  saving  gold.  To-day  gold  ores  are 
crushed  and  amalgamated  in  batteries  of  high- 
speed stamps  of  great  capacity  at  a  cost  of 
about  5oc.  per  ton.  Morison  high-speed  stamps 
weighing  1,600  Ibs.  per  stamp  crush  10  tons  of 
ore  per  day  per  stamp  at  the  Meyer  and  Charl- 
ton  mine  on  the  Transvaal  field. 

The  efficiency  of  crushing  mills  is  increased 
by  automatic  screening  and  feeding  appliances, 


56 

and  by  following  up  the  amalgamation  treat- 
ment by  chemical  or  smelting  processes.  For 
example,  the  method  of  treating  the  ore  from 
the  Ivanhoe  Mine,  Kalgvorlie,  West  Australia, 
is  as  follows:  The  ore  is  coarsely  crushed  in 
rock  breakers,  sized  in  trommel  screens  and 
automatically  fed  to  heavy  high-speed  stamps. 
The  gold  is  amalgamated  inside  the  mortar  of 
the  battery  and  on  outside  copper  tables.  The 
sulphides  are  concentrated  after  leaving  the 
amalgamating  tables,  roasted  and  cyanided. 
The  sand  is  treated  by  bromo-cyanide  solu- 
tions and  the  slime  is  treated  in  filter  presses. 
Most  of  the  large  mines  on  the  field  possess 
mills  employing  similar  complicated  processes. 
In  such  works  very  little  gold  is  lost,  whereas 
in  the  early  mining  plants  in  the  Western 
States  the  loss  of  gold  in  treatment  was  often 
very  large. 

Improvements  in  electrolytic  processes  have 
enabled  large  quantities  of  gold  to  be  extracted 
from  combination  with  other  metals. 

Smelting  methods  have,  also,  been  greatly 
improved.  This  enables  almost  all  kinds  of 
copper,  zinc,  lead,  antimony,  nickel  and  other 
ores  containing  gold  to  be  profitably  worked. 

Invention  of  New  Processes. — The  invention 
of  new  processes,  like  the  cyanide  process,  re- 
duces the  costs  of  gold  production,  and  opens 
up  new  sources  of  gold. 

The   cyanide   process   has   enabled   a   great 


57 

number  of  mines  throughout  the  world,  having 
low-grade  ores,  to  be  profitably  worked.  The 
invention  of  tube  mills  for  fine-grinding,  and 
of  decantation  and  filtering  machinery  for 
slime  treatment,  and  agitating  and  aeration 
appliances,  have  recently  greatly  improved  the 
efficiency  of  the  cyanide  process  and  very  con- 
siderably reduced  its  cost. 

New  Mining  Methods. — Mining  methods  are 
constantly  being  improved.  Such  methods  as 
those  practiced  in  the  open  cuts  at  the  Mount 
Morgan  mine  in  Queensland  greatly  reduce 
mining  costs. 

The  introduction  of  gold  dredges  has  opened 
up  large  areas  of  gold-bearing  land  to  miners. 
This  method  of  mining  is  largely  responsible 
for  the  increase  in  gold  production  in  recent 
years  in  New  Zealand,  Siberia,  California, 
Alaska  and  elsewhere.  The  average  cost  of 
dredging  gold  in  California  is  6c.  per  cubic  yard 
with  a  machine  of  40,000  cubic  yards  capacity, 
and  5c.  per  cubic  yard  with  a  dredge  of  70,000 
cubic  yards  monthly  capacity. 

Future  Prospects  of  Gold  Mining. — Gold  is 
widely  dispersed  in  nature.  It  is  not  only 
found  concentrated  in  rich  veins;  but  occurs  in 
immense  quantities  in  sand  and  sandstone  de- 
posits throughout  the  world.  Many  volcanic 
rocks  also  contain  gold.  In  some  districts  such 
volcanic  rocks  are  being  worked  for  their  gold 
contents.  It  is  estimated  that  the  known  gold 


58 

fields  are  capable  of  supplying  the  world's  gold 
demands  for  several  centuries.  When  they 
are  exhausted,  putting  aside  any  reference  to 
the  probability  of  new  fields  being  discovered 
and  developed,  improvements  in  mining  and 
metallurgical  processes  will  enable  poorer  and 
poorer  gold-bearing  formations  to  be  worked. 
There  is  no  possibility  of  a  gold  famine  occur- 
ring. Indications  all  point  to  a  continued 
steady  increase  in  gold  production.  Deficien- 
cies caused  by  the  working  out  of  rich  bon- 
anza deposits  on  certain  fields  will  be  balanced 
by  the  finding  of  similar  bonanzas  on  other 
fields,  or  by  the  operation  of  low-grade  deposits 
on  a  large  scale  by  means  of  improved  and 
cheapened  processes.  The  annual  gold  yield  is 
now  above  $412,000,000.  The  demand  for  gold 
is  so  keen  that  there  is  no  probability  of  the 
yield  being  permitted  to  fall  below  that  amount. 
We  may  confidently  anticipate  progressive 
yearly  increases  in  production. 


Gold  Depreciation  Means  Rising  Com- 
modity Prices. 

By   W.    G.    NICHOLAS. 

In  the  conduct  of  their  campaign  for  the 
education  of  the  freight-paying  public  to  the 
virtue  of  an  advance  in  rates  the  railroad  men 
might  make  their  case  stronger  if  they  would 
more  urgently  direct  and  firmly  hold  attention 
to  a  great  underlying  equity  in  the  proposition, 
which  has  down  to  date  been  almost  entirely 
ignored.  By  so  doing  they  might  convincingly 
prove  that  not  only  is  there  present  occasion 
and  necessity  for  the  raise,  but  they  would  be 
showing  why  this  is  so,  why  in  a  reconstruction 
of  the  rate  schedules  upward  they  are  moving 
in  obedience  to  irresistible  forces,  and  why 
there  are  the  best  of  reasons  for  anticipating  a 
long  continuation  of  the  basic  causes  which  are 
compelling  action. 

There  is  nothing  in  an  elucidation  of  this 
subject  to  excite  emotional  or  dramatic  thrill, 
but  in  it  there  will  be  found  more  than  the 
germ  of  a  great  truth  which  can  be  studied 
with  profit  by  every  man  who  has  a  dollar  or 
expects  to  get  one — studied  understandingly 


This    article   was   specially   prepared    for   the   market   letter 
service. 

59 


60 

and  its  meaning,  force  and  bearing  as  an  ever- 
present  business  and  market  factor  grasped 
with  proper  appreciation. 

We  do  not  need  to  be  told  that  most  things 
purchasable  with  money  have  advanced  heavily 
in  price  during  the  last  decade.  It  is  of  com- 
mon knowledge  why  this  is  the  case,  yet  the 
philosophy  of  the  subject  is  rarely  adverted  to 
in  conversation  or  discussion.  It  is  sedulously 
avoided  as  wearisome  or  abstruse,  yet  it  is  to- 
day the  very  core  and  essence  of  our  business 
life,  and  incidentally  the  weightiest  considera- 
tion in  the  making  of  the  stock  market.  It 
bears  specifically  on  every  pocket-book. 

The  general  rise  in  prices  which  has  been 
going  on  during  the  past  ten  or  twelve  years 
has  kept  substantial  pace  with  the  increase 
in  the  production  of  gold  and  the  stock  of  gold 
money.  The  enlarged  yield  of  gold  is  proceed- 
ing at  about  the  maximum  stage  yet  reached, 
approximately  $415,000,000  a  year,  of  which  it 
is  estimated  that  $60,000,000  to  $75,000,000 
goes  into  manufactures  and  arts  and  the  re- 
mainder into  the  money  supply — at  least 
$1,000,000  a  day  or  $3,650,000,000  in  another 
decade. 

APPROXIMATE  STOCKS  OF  MONETARY  GOLD  IN  THE 

PRINCIPAL  COUNTRIES  OF  THE  WORLD, 

DECEMBER  31,  1906. 

Country.  Stock  of  Gold. 

United  States $1,593,300,000 

Austria-Hungary 306,400,000 

Belgium 31,100,000 


61 


British   Empii 

Australasia 125,000,000 

Canada 62,400,000 

United    Kingdom 485,700,000 

India        337,300,000 

South  Africa 61,400,000 

Straits  Settlements 600,000 

Bulgaria 7,200,000 

Cuba 38,200,000 

Denmark 22,600,000 

Egypt 140,000,000 

Finland 5,100,000 

France 926,400,000 

Germany 1,030,300,000 

Greece 5,600,000 

Haiti 1,000,000 

Italy 215,500,000 

Japan 80,100,000 

Mexico 40,000,000 

Netherlands 45,900,000 

Norway 8,300,000 

Portugal 8,600,000 

Roumania 20,700,000 

Russia 939,400,000 

Servia 2,200,000 

South  American  States — 

Argentina 102,700,000 

Bolivia 400,000 

Brazil 21,200,000 

Chile 2,000,000 

Colombia 100,000 

Ecuador 3,700,000 

Guiana —   . . 

British 100,000 

Dutch 200,000 

Paraguay 100,000 

Peru 6,800,000 

Uruguay 15,500,000 

Venezuela 300,000 

Spain 90,900,000 

Sweden 22,600,000 

Switzerland 29,000,000 

Turkey 50,000,000 

Central  American  States  . .  2,000,000 


Total $6,888,900,000 


62 

The  ranking  authorities  of  Europe  and 
America  hold  out  no  hope  of  important  reduc- 
tion in  the  output  for  many  years  to  come, 
although  some  of  them,  notably  Mr.  George  E. 
Roberts,  for  many  years  director  of  the  U.  S. 
Mint,  and  at  present  president  of  the 
Commercial  National  Bank  of  Chicago,  is 
of  opinion  that  we  have  reached  the 
limit  and  no  great  change  either  way  may 
be  expected  for  perhaps  a  decade.  The 
world's  gold  production  has  increased  at 
an  average  rate  of  about  $20,000,000  a  year 
since  1896  —  from  $202,000,000  in  1896  to 
$412,000,000  in  1907 — and  most  recent  com- 
putations show  that  the  average  commodity 
price  is  about  50  per  cent,  higher  now  than  at 
the  earlier  date  named. 

The  conclusion  is  forced  on  us  that  the  world 
is  in  an  era  of  extraordinary  gold  inflation,  or 
if  that  phrase  jars,  employ  the  softer  word 
expansion.  The  net  result  is  depreciation  in 
the  value  of  the  dollar,  of  which  measure  and 
reflection  is  found  in  higher  average  prices — 
not  necessarily  values,  but  prices.  With  gold 
production  going  on  at  the  present  rate  and 
no  indications  of  a  let-down,  who  can  judge 
with  certainty  when  the  rise  in  prices  will  stop 
or  the  buying  value  of  the  dollar  find  bottom? 
The  one  certainty  we  all  see  and  realize  is  that 
the  tide  is  still  rising.  It  does  not  rise  noisily 
or  stormily,  and  the  people  are  not  hourly 


63 

thrown  into  convulsions  by  the  spectacle,  yet 
the  tide  ceaselessly  creeps  up,  up,  up.  The 
level  of  the  golden  flood  ever  reaches  higher, 
without  rest  or  wait.  The  movement  is  silent, 
almost  stealthy,  yet  resistless  as  death.  And 
every  new  high  record  in  the  volume  of  gold 
money  makes  for  higher  average  prices  in  the 
markets  of  the  whole  civilized  world.  That  has 
been  the  visible  effect  of  the  gold  inflation 
force  for  the  last  ten  years,  and  if  there  is  any 
change  in  the  tendency  or  current  it  is  not 
yet  perceptible. 

The  railroads  stand  out  as  practically  the 
only  exception  to  the  upward  swing  of  prices 
due  primarily  and  chiefly  to  the  gold  inflation 
— not  railroad  stocks,  but  the  only  commodity 
the  railroads  have  to  sell,  namely,  transporta- 
tion. That  single  line  of  merchandise,  the  sole 
product  of  the  greatest  of  American  industries, 
remains  practically  where  it  was  ten  years  ago. 
The  railroads  have  not  participated  appreciably 
in  the  almost  universal  price  uplift.  Transpor- 
tation as  a  merchantable  commodity  is  sold  at 
about  former  quotations.  It  is  entitled  to  its 
day  in  court.  It  is  entirely  out  of  harmony 
with  the  rest  of  the  situation. 

The  raw  materials  the  railroads  use  in  the 
manufacture  of  the  single  commodity  they  deal 
in  are  away  up  in  price  (30  to  75  per  cent.) — 
labor,  iron,  steel,  ties  and  all  forms  of  equip- 
ment and  supplies.  The  cost  of  operation  is  15 


64 

to  30  per  cent,  more  than  it  was  even  so  re- 
cently as  five  years  ago,  and  a  better  standard 
of  goods  than  formerly  is  demanded  and  exacted 
— greater  efficiency,  safety  and  convenience. 

There  might  be  valid  ground  for  opposing 
the  contention  of  railroads  for  the  privilege  of 
marking  up  the  price  of  their  goods,  even  in 
the  face  of  proved  large  increase  in  cost  of 
production,  if  it  could  be  shown  that  the  move 
was  being  attempted  to  meet  a  temporary  con- 
dition. Unfortunately  or  fortunately  (depend- 
ing on  the  point  of  view)  the  conditions  that 
now  confront  the  railroads,  in  common  with 
the  rest  of  the  world,  hold  out  no  such  hope  or 
possibility. 

With  a  continually  depreciating  dollar  the 
inexorable  logic  of  the  situation  points  to  a  still 
higher  rise  in  the  register  of  commodity  prices, 
making  escape  from  an  advance  in  freight  rates 
daily  and  hourly  more  impossible.  The  facts, 
figures  and  conclusions  presented  by  Vice- 
President  Brown,  of  the  New  York  Central,  in 
favor  of  higher  rates  were  unanswerable  as  far 
as  they  went,  but  failed  to  wholly  satisfy.  If 
he  had  gone  further  and  dug  deeper  into  first 
causes  he  would  have  made  his  contention 
clearer  and  at  the  same  time  would  have  proved 
the  utter  impossibility  of  a  change  for  the  beter 
in  the  legitimate  railroad  position. 

Logically  there  is  only  one  course  open. 
For  the  reasons  set  forth  in  the  foregoing  it 


65 

would  be  grossly  unjust  to  the  employees  to 
cut  their  wages,  in  the  face  of  advancing 
prices  for  the  necessities  of  life — a  movement 
that  threatens  to  stretch  out  indefinitely,  or 
until  the  gold  mines  shut  down  or  become 
unprofitable. 

In  Thomas  Gibson's  Special  Market  Letter 
of  July  28,  Mr.  Arthur  Selwyn-Brown  presents 
complete  tables  of  the  production  of  gold  from 
the  date  of  discovery  of  America  down  to  the 
present  time,  besides  other  facts  and  data  of  a 
most  interesting  character.  Such  statistics  can- 
not be  pulished  too  often  or  distributed  too 
diffusely.  They  should  be  always  before  the 
vision  of  a  business  man,  as  a  map.  They  tell 
in  the  most  condensed  possible  form  the  story 
of  the  revolutionizing  development  in  the 
world's  most  important  industry — a  record 
that  commands  the  intelligent  thought  of  the 
country. 

Statistics  presented  by  Mr.  Roberts  tell  us 
that  stocks  of  gold  in  the  principal  banks  of 
public  issue  and  public  treasuries  of  the  world 
at  the  close  of  1906  showed  an  increase  of 
$1,625,487,000  during  the  eleven  years  last  pre- 
ceding, or  85  per  cent. 

During  the  twelve  years  ending  with  1907 
the  production  of  gold  closely  approximated 
$3,730,000,000;  $2,960,000,000  went  into  the 
form  of  money,  according  to  a  high  authority. 

With  this  astounding  record  of  gold  inflation 


66 


already  accomplished  and  the  promise  of  still 
greater  future  inflation,  where,  it  may  be  asked 
in  passing,  does  the  chronic  bear  on  the  stock 
market  stand?  What  hope  is  there  for  him? 


Gold  Inflation  and  Interest  Rates.* 

By   PROFESSOR  J.    PEASE   NORTON,   of   Yale   University. 

Important    Problems    of    the     Monetary 
Commission. 

The  present  commission  is  facing  the  prob- 
lems of  inflation,  a  condition  of  affairs  which 
are  the  reverse  of  1894.  We  are  in  the  era  of 
a  world  inflation.  How  extensive  had  been 
this  inflation,  by  discovery  of  new  processes 
of  mining  gold,  and  new  sources  of  supply,  and, 
more  important  yet,  by  new  inventions  in  credit 
in  the  way  of  economizing  the  use  of  gold,  the 
first  two,  at  least,  Mr.  Arthur  Selwyn-Brown 
has  exhaustively  pointed  out. 

The  whole  subject  of  gold  inflation  has  been 
a  source  of  much  controversy,  largely  arising 
from  misconceptions.  Some  writers  have  main- 
tained that  increased  supplies  of  gold  cause 
interest  to  rise.  This  is  the  long-time  view 
and  applies  to  averages  of  interest  covering 
three  and  five-year  periods.  Bankers  know  that 

*  An  extract  from  a  market  letter  containing  an  article 
on  the  "Outlook  for  the  Next  Six  Months,"  specially  written 
by  Prof.  Norton  for  Thomas  Gibson. 

67 


68 

increased  gold  reserves  automatically  reduce 
interest.  This  is  the  short-time  view  and  ap- 
plies to  periods  of  two  months  to  a  year.  The 
chain  of  events  consists  of:  increased  produc- 
tion of  gold,  low  interest  as  a  result  of  large 
reserves,  general  speculation  resulting  from 
optimistic  calculation  of  profits  on  the  basis  of 
too  low  a  cost  for  borrowed  capital,  pyramid- 
ing, rising  prices  from  this  speculative  demand, 
higher  wages  arising  from  higher  cost  of  living, 
higher  interest  because  the  demand  for  capital 
for  productive  purposes  outruns  the  supply, 
permanent  depreciation  of  gold,  permanent  in- 
crease in  prices,  excessive  interest,  producing  a 
collapse  of  the  credit  machinery,  temporary 
stagnation  of  business.  This  is  the  constantly 
recurring  cycle.  The  money  then  collects  in 
banks  temporarily,  and  excessively  low  interest 
results,  as  at  present. 

The  interest  rate  during  periods  of  gold  de- 
preciation fluctuates  more  violently  and  over  a 
wider  range.  Commodity  prices  rose  70%  to 
the  beginning  of  the  crisis.  Since  this  high 
point  they  have  declined  15  to  20%.  The  low 
interest,  the  large  supplies  of  gold,  returning 
optimism,  the  elimination  of  political  uncertain- 
ties, all  should  result  in  a  violent  increase  in 
commodity  prices,  in  railroad  rates,  in  railroad 
earnings,  and  long  advance  in  the  prices  of 
railroad  stocks.  The  people  will  do  well  to 
purchase  the  common  stocks  of  honestly  man- 


69 

aged  industrials  and  railroad  corporations. 
Great  profits  are  ahead,  and  an  era  of  great 
activity.  As  stocks  rise  in  price,  bonds  will  fall 
still  further.  In  the  1904  depression,  New 
York  3-J%  bonds  sold  at  104.  In  1908  New 
York  City  sJ's  are  less  than  90,  a  decline  of  14 
points.  If  the  gold  depreciation  theory  is 
correct,  we  may  expect  to  see  the  prices  of 
stocks  very  much  higher.  The  more  heavily 
bonded  they  are,  the  higher  they  will  go;  and 
bonds  will  go  very  much  lower. 

STOCKS  VS.  BONDS. 

If  in  a  renewal  of  activity,  interest  shall 
harden  to  6%  and  7%  for  long  periods  after  a 
period  of  speculation  of  eighteen  months, 
dating  from  the  present  time,  the  event  could 
hardly  fail  to  depress  the  price  of  substantial 
bonds,  like  New  York  City  issues,  ten  to  fifteen 
points,  and  specialties  to  a  considerably  greater 
extent.  The  reasoning  underlying  the  prob- 
ability is  drawn  not  only  from  the  effects  of 
gold  depreciation  which  in  the  long  run  steadily 
depresses  the  prices  of  bonds  which  have  no 
equities,  but  also  from  technical  causes. 

The  supply  of  bonds  is  very  large  at  present. 
Banks  hold  considerable  quantities  bought  at 
higher  prices.  Substantial  advances  in  price 
will  be  met  by  heavy  sales;  there  is  an  enor- 
mous amount  of  bonds  carried  over  the  crisis 
by  syndicates.  These  bonds  were  underwritten 


70 

at  prices  which  show  at  present  heavy  losses 
to  the  members.  These  bonds,  when  offered, 
will  carry  high  actual  yields  and  will,  therefore, 
tend  to  compete  with  issues  now  held  by  banks 
and  investors,  since  these  latter  issues  have 
no  more  adequate  security. 

To  increase  the  market  for  these  securities, 
doubtless,  earnest  efforts  will  be  made  in  the 
way  of  effecting  legislation  so  that  these  bonds 
may  become  security  for  public  deposits  and 
bank  circulation.  This  temporary  solution  for 
the  bond  market  will  help  to  carry  on  at  a 
more  rapid  rate  the  great  inflation. 

It  will  mean  in  the  end  a  redundant  currency, 
higher  interest,  higher  prices  for  commodities, 
higher  prices  for  stocks,  and  ultimately,  an- 
other collapse  in  credit,  more  destructive  than 
that  of  1908.  But  as  long  as  interest  stays  low, 
we  may  expect  the  glad  effects  of  the  merry 
pyramid  of  inflation,  which  the  markets  build 
so  enthusiastically,  and  await  with  foresight 
the  toppling  of  the  pyramid,  the  collapse  of  the 
inflation,  the  Presidential  campaign  of  1912,  and 
perhaps  the  crisis  of  1913-14,  which  has  been 
already  foretold  by  the  chronic  chronologists, 
as  twenty  years  after  the  great  panic  of  1893, 
forty  years  after  the  dark  days  of  1873. 

REVIVAL  OF  PROSPERITY  AT  HAND. 
But  now,  the  indications  are  that  the  revival 
of  business  is  on  in  earnest,  and  that  prosperity 


71 

will  soon  be  evident.  To  this  date  general 
statistics  are  negative.  But  technical  informa- 
tion is  quite  encouraging.  The  recovery  is  due 
to  fundamental  causes,  economic  in  their 
nature,  great  crops,  a  wonderful  growing  coun- 
try, an  inventive  people,  a  sound  technical 
position  in  the  industries  and  in  the  corpora- 
tions, and,  lastly,  the  realization  .by  a  few 
wealthy  people  of  the  important  effects  of  gold 
depreciation.  That  earnest  attention  has  been 
paid  to  the  subject  by  certain  important  bank- 
ing interests,  and  that  this  probability  has  fig- 
ured in  plans  framed  for  many  months  ahead, 
are  facts  which  are  doubtless  within  the  knowl- 
edge of  a  few.  In  this  connection,  the  true 
meaning  of  Mr.  Arthur  Selwyn-Brown's  words 
regarding  the  gold  production  of  the  future 
should  be  emphasized  again  at  least  by  repeti- 
tion. "There  is  no  possibility  of  a  gold  famine 
occurring.  We  may  confidently  anticipate  pro- 
gressive yearly  increases  in  production."  In 
other  words,  the  inflation  must  proceed  at  an 
increasing  rate. 

THE  IMMEDIATE  OUTLOOK. 
The  stock  market  has  passed  through  the 
panic  more  or  less  successfully.  Few  receiver- 
ships have  occurred.  The  damage  has  not  been 
excessive.  The  recovery  to  date  has  been  very 
rapid.  For  the  1907  disturbance  was  a  credit 
crisis,  arising  from  inflation,  and  not  an  indus- 


72 

trial  crisis  arising  fom  war  or  waste  or  great 
shortage  in  the  crops. 

The  immediate  question  is  whether  the  rise 
in  prices  has  sufficiently  discounted  the  future 
conditions  which  we  have  reason  to  believe  will 
develop  of  a  favorable  nature  within  the  next 
six  or  eight  months.  This  would  appear  quite 
improbable.  Much  of  the  advance  is  a  recoil 
from  two  extreme  declines,  declines  which 
were  beyond  reason,  when  measured  against 
existing  conditions.  It  is  doubtful  whether  the 
elimination  of  political  uncertainty,  the  recov- 
ery in  earnings  which  will  be  evident  during 
the  next  six  months,  the  easy  monetary  condi- 
tions, the  growing  crops,  the  return  of  optim- 
ism, the  effects  of  gold  depreciation,  and  the 
rate  of  growth  of  our  nation,  partially  checked, 
have  yet  been  adequately  discounted.  The 
public  is  very  timid.  The  stock  market  is  still 
among  the  foothills,  and  far  from  the  peaks. 
As  long  as  the  public  hesitates,  the  days  of 
large  reactions  is  comparatively  insignificant. 


The  Gold  Supply 

It  may  be  stated  without  hesitation  that  the 
effect  of  the  increasing  supply  of  gold  upon 
prices  of  all  bonds,  shares,  or  commodities 
which  may  be  classed  as  speculative,  is  more 
decided  and  certain  in  its  operation  than  any 
other  single  factor.  The  process  of  readjust- 
ment due  to  this  cause  would  be  slow  and 
regular  if  the  principles  at  issue  were  uni- 
versally and  clearly  understood.  Not  being 
generally  recognized,  however,  the  changes 
wrought  by  what  is  naturally  an  insidious  fac- 
tor are,  at  times,  spasmodic  and  feverish.  It 
is  a  remarkable  fact  that  whenever  a  revolu- 
tion occurs  in  any  economic  or  financial  pro- 
cess which  is,  by  its  nature,  concealed  or  re- 
condite^  its  existence  and  influence  are  dis- 
covered by  a  number  of  students  simultane- 
ously but  independently.  Important  reversions 
or  modifications  may  be  submerged  for  a  long 
period,  and  suddenly  light  is  offered  from  all 
parts  of  the  thinking  world.  It  is  probable  that 
this  intellectual  phenomenon  extends  to,  or  is 


Reprinted    from    "The    Cycles    of    Speculation,"    by    Thomas 
Gibson. 

73 


74 

communicated  to  the  financial  world,  and  that 
marked  and  drastic  changes  in  the  affected 
quarters  represent  a  belated  recognition  of 
forces  hitherto  unknown,  and  the  readjustment 
of  affairs  by  those  who  see  first  and  furthest. 
That  the  operations  of  this  minority  will  be 
important  goes  without  saying.  The  faculty 
to  grasp  fully  and  quickly  anything  salient 
bearing  on  financial  affairs  is  the  ground-work 
of  riches  and  consequently  the  trained  minds  of 
great  holders  of  shares  or  commodities  will  re- 
spond most  readily  to  sound  basic  arguments, 
and  the  greatest  holders  can  often  make  of  their 
knowledge  a  two-edged  sword.  For  example, 
certain  large  holders  of  bonds,  recognizing  the 
fact  that  increasing  gold  production  means 
higher  interest  rates,  and  consequently  lower 
prices  for  bonds,  would  be  able  to  dispose  of 
bonds  to  advantage  because  of  the  apparent 
general  prosperity  growing  out  of  this  same 
production  of  gold.  It  may  be  assumed  that  in 
pointing  out  in  interviews,  etc.,  this  reign  of 
prosperity,  the  gentlemen  in  question  would 
modestly  omit  to  mention  that  the  same  in- 
fluences which  were  causing  high  prices  and 
much  business  in  some  quarters,  were  working 
damage  in  others. 

Something  of  this  kind  has  been  going  on  in 
our  bond  and  stock  markets  of  late.  The  in- 
evitable influence  of  gold  on  prices  has  made 


75 

itself  slowly  felt  for  a  long  period,  but  it  is  only 
in  the  last  year  that  a  considerable  number  of 
individuals  whose  operations  are  of  importance 
in  the  financial  world  have  come  to  recognize 
how  powerful  this  influence  Is.  Price  changes 
in  divers  securities  and  commodities  hitherto 
unaccounted  for,  or  attributed  to  wrong  in- 
fluences, have  suddenly  been  explained  to  a 
number  of  important  financiers,  and  a  correct 
understanding  of  the  problem  has  undoubtedly 
resulted  in  radical  readjustments  in  some  quar- 
ters. With  that  pertinacity  in  error  which 
seems  to  distinguish  the  ordinary  speculator, 
he  has,  however,  gone  on  attributing  these  pro- 
cesses of  equilibration  to  causes  which  have 
only  a  limited  bearing  on  the  case.  The  recent 
heavy  decline  in  bonds  and  stocks,  for  exam- 
ple, was  popularly  ascribed  to  political  and 
legislative  action  against  railroads.  Scarcity 
of  money  was  given  second  place  in  these  de- 
ductions, and  gold  production  third  place,  or 
no  place  at  all.  If  we  reverse  this  order  of 
importance  and  give  gold  production  first 
place,  monetary  affairs  second  place,  and  polit- 
ical affairs  third  place,  we  are  nearer  the  truth. 
It  looks  a  little  ridiculous  that  the  scope  of 
intelligent  perspective  should  be  blocked  by 
three  thousand  miles  of  water,  and  that  the 
unthinking  majority  who  ascribe  our  decline 
in  bonds  to  local  politics  should  have  failed  to 


76 


recognize  so  potent  a  fact  as  that  the  decline 
was  world-wide;  but  such  is  the  case.  The 
readjustment  in  bonds  was  due  to  excessive 
over-production  of  gold,  and  it  may  be  safely 
assumed  that  so  long  as  this  over-production 
continues  to  increase  rapidly,  bonds  will  con- 
tinue low  in  price  or,  what  amounts  to  the 
same  thing,  interest  rates  will  remain  high. 

As  to  the  importance  of  a  correct  under- 
standing on  this  subject  of  gold  supply  and  its 
influence  on  prices,  I  quote  from  Mr.  Byron 
W.  Holt's  book  "The  Gold  Supply  and  Pros- 
perity," which,  I  may  add,  is  used  as  the  text 
book  for  this  chapter.  Mr.  Holt  says: 

"This  is  the  great  problem  that  now  confronts  the 
financial  world  and  demands  solution  of  every  in- 
vestor. Not  to  solve  it  may  mean  great  loss  and 
possible  failure.  To  solve  it  means  success  and 
greatly  enhanced  wealth  for  all  who  now  have  either 
a  fair  share  of  this  world's  goods  or  who  have  credit 
and  can  intelligently  go  in  debt  for  a  large  amount." 

As  speculation  or  investment-speculation,  as 
defined  in  the  introduction  to  this  book,  are  the 
subjects  under  discussion  it  is  the  intention  to 
take  up,  in  turn,  such  points  as  bear  particu- 
larly upon  price  changes  of  speculative  shares 
and  commodities  influenced  by  our  increasing 
supply  of  gold.  The  main  points  to  be  con- 
sidered are  as  follows: 

1 — The  effect  upon  bonds  and  preferred 
stocks  having  a  fixed  rate  of  income. 


77 


2 — The  effect  upon  common  stocks  of  rail- 
road corporations. 

3 — The  effect  upon  stocks  of  industrial  cor- 
porations. 

4 — The  effect  upon  speculative  commodities 
— wheat,  corn,  oats,  cotton,  etc. 

For  the  purpose  of  argument  it  will  be  as- 
sumed in  this  discussion  that  our  supply  of 
gold  is  rapidly  increasing.  We  know  that  such 
has  been  the  case  in  recent  years,  and  it  is  the 
opinion  of  most  students  that  this  increase  may 
be  confidently  expected  to  continue.  To  quote 
again  from  the  work  already  mentioned: 

"Both  the  output  and  supply  of  gold  are  likely  to 
increase  for  many  years. 

"While  the  future  output  of  gold  is,  of  necessity, 
unknown  and  uncertain,  there  is  great  unanimity  of 
opinion,  among  •  mining  experts,  on  this  point.  It 
appears  lo  be  generally  recognized  that,  during  the 
last  twenty  years,  the  industry  of  gold  mining,  or 
rather  of  gold  production,  has  been  established  on  a 
very  different  and  much  more  certain  basis  than  any 
previously  existing.  No  longer  is  the  output  of  gold 
dependent  mainly,  or  even  largely,  upon  placer  min- 
ing and  the  chance  finds  of  'free"  gold.  The  sup- 
ply of  gold,  in  rock,  sand,  clay,  and  water,  being  inT 
exhaustible,  it  is  now  possible,  by  machinery  and 
metallurgical  processes,  to  extract  gold,  in  paying 
quantities,  from  many  forms  of  these  vast  store- 
houses. To  such  an  extent  is  this  true  that  the 
future  supply  of  gold  is  even  more  secure  than  is 
that  of  coal,  iron,  lumber,  wheat  or  cotton. 
^"Even  if  prospecting  were  to  stop  and  attention 


78 


were  to  be  devoted  only  to  the  gold  mines  and 
bodies  already  discovered,  and  geologically  in  sight, 
it  is  probable  that  the  output  of  gold  would  continue 
to  increase  for  many  years.  As  Mr.  Selwyn-Brown, 
a  gold  mining  expert,  tells  us  in  his  very  interesting 
article,  'as  the  rich  surface  deposits  are  being 
worked  out,  improvements  in  mining  and  metallur- 
gical processes  are  enabling  poorer  and  poorer  de- 
posits to  be  worked.'  That  is,  improvements  in 
'stamp  mills/  cyanide  mills,  dredging  machines  and 
other  gold  extracting  apparatus  and  processes  are 
being  made  so  rapidly  that  it  is,  every  year,  becom- 
ing profitable  to  work  lower  and  lower  grades  of 
ore,  sand  and  earth.  As  the  grade  declines  the 
quantity  in  sight  increases  rapidly.  In  fact  there 
are  almost  literally  mountains  of  low  grade  gold  ore 
that  can  even  now  be  worked  profitably.  Some  of 
the  largest,  most  productive  and  most  profitable 
mines  of  today  contain  ore  averaging  less  than  $3 
and,  in  some  instances,  only  $2  of  gold  per  ton. 

"The  supply  of  such  ore  being  inexhaustible  the 
output  depends  upon  the  number  and  size  of  the 
mills  employed  to  extract  the  gold.  It  is  reason- 
ably certain  that,  for  years  to  come,  the  improve- 
ments in  methods  and  processes  of  mining  will 
more  than  keep  pace  with  both  the  decline  in  the 
quality  of  the  ore  and  the  increase  in  the  cost  of 
mining  due  to  rising  prices  and  wag^j,  occasioned 
by  the  depreciation  of  gold. 

"In  view  of  all  the  facts,  Mr.  Selwyn-Brown's 
conclusion  that  'a  progressive  increase  each  year 
may  confidently  be  expected'  is  conservative.  This 
conclusion,  is  almost  a  certainty.  The  uncertainty 
lies  in  the  possibility,  if  not  probability,  either  of 
discovering  many  important  new  mines  in  the  prac- 
tically unexplored  parts  of  every  continent,  or  of 


79 

making  improvements  that  will  radically  reduce  the 
cost  of  extracting  gold.  In  either  case  the  increase 
in  the  output  of  gold  might  be  not  simply  arithmet- 
ically but  geometrically  progressive." 

Admitting  that  the  question  of  gold  produc- 
tion is  debatable,  it  remains  for  the  future  to 
develop  any  radical  change,  and  it  will  be 
necessary  for  the  student  to  decide  this  point 
for  himself  either  by  the  light  of  facts  as  yet 
not  established,  or  by  accepting  theories  as  yet 
not  convincingly  erected.  If  a  change  occurs, 
or  may  reasonably  be  expected,  an  understand- 
ing of  the  subject  from  the  positive  side  of  the 
question  loses  none  of  its  value.  The  prin- 
ciples involved  could  be  as  successfully  applied 
in  reading  the  probable  future  by  modifying 
or  reversing  effects,  and  reconciling  them  to  a 
modification  or  reversal  in  the  cause.  If,  for 
example,  we  accept  the  theory  that  increased 
gold  production  means  advancing  commodity 
prices,  and  find  reason  later  to  believe  that  gold 
production  will  cease  to  maintain  its  ratio  of 
increase,  we  may  alter  our  views  accordingly 
so  far  as  this  single  influence  is  concerned. 

1 — The  effect  of  the  increasing  gold  produc- 
tion on  bonds  and  preferred  stocks  having  a 
fixed  rate  of  income. 

In  this  division  of  the  question  the  crux  of 
the  whole  matter  is  interest  on  money.  The 
question  might,  in  fact,  be  stated  thus :  "What 


Of  Tut 

"NIVEHSITV 

OF 


80 

is  the  effect  of  increasing  gold  supply  on 
money  interest  rates?"  and  having  solved  that 
problem,  the  original  inquiry  is  answered. 

To  reach  a  reasonable  solution  we  must  first 
examine  the  effect  of  an  unduly  increasing  sup- 
ply of  gold  on  commodity  prices.  Over-pro- 
duction in  any  quarter  inevitably  leads  to  lower 
prices.  Gold  being  a  fixed  standard  cannot  de- 
cline in  figures,  but  it  does  so  in  fact.  That  is 
to  say,  the  flexible  prices  of  things  which  gold 
will  buy  rise  to  fill  the  gap.  Thus,  since  1896, 
prices  of  commodities  have  risen  50%.  The 
man  who  loaned  money  ten  years  ago  finds  its 
purchasing  power  impaired  33  1-3%,  when  it  is 
returned  to  him  today,  for  the  reason  that  com- 
modity prices  having  advanced  50%  in  the  in- 
terim, his  dollar  will  now  buy  only  66  2-3% 
of  what  it  would  buy  in  1897.  This  impairment 
of  principal  will  be  covered,  in  part  at  least,  by 
interest  rates.  This  effect,  if  not  recognized 
and  arbitrary  would  adjust  itself  automatically, 
regardless  of  whether  or  not  investors  recog- 
nize the  influence  of  changing  values  of  gold, 
for  money,  finding  higher  returns  in  other  quar- 
ters, would  speedily  desert  the  long-term, 
fixed-interest  investment  field,  and  prices  of 
such  securities  would  decline  through  lack  of 
demand. 

On  the  subject  of  interest  rates  Mr.  Holt 
says: 


81 

"But  there  is  another  reason  why  interest  rates 
should  be  high  when  prices  are  rising.  When 
money  is  shrinking  in  value  interest  rates  should  be 
high  to  make  up,  or  partly  make  up,  the  losses  on 
the  principals  of  loans.  To  illustrate:  Suppose  that 
prices  are  rising  10%  a  year.  This  means  that  the 
purchasing  power  of  money  is  declining  about  10% 
a  year.  Suppose,  then,  that  $100  were  loaned  for 
one  year  at  5%.  At  the  end  of  the  year  the  lender 
would  have  $105;  but  with  this  $105  he  could  buy 
only  about  as  much  as  he  could  have  bought  with 
$95,  at  the  beginning  of  the  year.  In  reality,  he  has 
received  no  interest  at  all  but  has,  instead,  paid  $5 
to  the  man  for  holding  his  $100.  The  man  with 
money  to  loan  cannot  afford  to  do  business  in  this 
way.  He  is  usually  as  wise  as  are  his  neighbors, 
and  fully  as  able  to  protect  his  own  interests  and  to 
get  all  his  money  is  worth,  either  by  buying  real 
property,  investing  in  bonds  and  stock  or  by  loaning 
on  notes  or  on  call." 

In  submitting  the  above  contentions  it  must 
be  fairly  stated  that  there  is  some  diversity  of 
opinion  as  to  the  effects  of  gold  on  interest 
rates.  A  few  writers  demur  to  the  theory; 
others  hold  that  the  effect  is  nil,  and  one  or  two 
openly  adopt  the  negative  side  of  the  discus- 
sion, and  state  that  more  money  means  lower 
rates  of  interest.  The  majority  of  recent  in- 
vestigators, however,  appear  to  be  accepting 
the  theory  as  given  herein,  and  it  may  be 
added  that  prices  of  the  class  of  securities 
considered  have  borne  out  the  hypothesis  faith- 
fully, and  that  the  minority  have  failed  to  offer 


82 

convincing  explanations  of  this  readjustment. 
It  will  not  do  to  point  to  the  fact  that  money 
has  been  fully  employed  in  constructive  rather 
than  investment  fields  of  late ;  for  while  this  is 
true  enough,  it  does  not  explain  why  gilt-edged 
bonds  such  as  British  Consols  have  declined  in 
value,  while  stocks  and  shares  which  did  not 
bear  the  onus  of  circumscribed  returns  have 
advanced.  There  are,  of  course,  contributory 
causes:  the  Labor-Socialistic  Government  in 
England  no  doubt  affects  the  prices  of  consols, 
but  this  influence  is  specific,  and  loses  most  of 
its  force  when  we  consider  that  not  only  these 
particular  securities,  but  practically  all  others 
of  their  class  the  world  over  have  suffered  a 
radical  decline.  In  other  words,  interest  rates 
have  grown  comprehensively  higher.  The 
theory  appears  sound,  is  borne  out  by  events, 
and  mere  denial  does  not  weaken  it.  It 
may  well  be  accepted  until  its  opponents  suc- 
ceed in  giving  us  something  more  convincing 
in  its  place. 

In  support  of  the  theory,  Mr.  Holt  repro- 
duces the  following  table  of  British  bonds  from 
Moody's  Magazine  for  October,  1906. 

PRICES  OF  BRITISH  INVESTMENT  BONDS. 

%         1906       1905      1904     1896 
British  Consols...     2j         86}         89*        88*     *ii3l 

Met.  Consols 3*       ™*         ™4         104$       128} 

London  County. ..     3  88*         94i         93         "8J 


83 

%  1906  1905  if)O4  1896 

Leeds 4  108  109  inj  130$ 

Liverpool 3$  107  109  109  144^ 

Manchester 4  123  128^  124!  159 

New  South  Wales.     3$  ioo£  100           96  112^ 

Queensland 3$  99^  99  96  ui$ 

Canada 3  98^  100^  97  107  £ 

Cape 3i  97  98           95  120 

Lon.  &  N.  Western    3  93  96           95  124^ 

Midland 2$  76  79           78  t^f 

Great  Western 4  123  127  123*  164 

Average 3.3  100.2  101.8  100.9  128.4 

i.     fThenS^. 


"Thus,"  comments  the  writer,  "these  13  British 
bonds,  supposedly  the  safest  and  least  speculative 
of  all  securities,  have  declined  an  average  of  over 
28  points  in  ten  years.  Considering  incomes  and 
present  prices,  the  unfortunate  investors  in  these 
bonds  have  not  only  received  less  than  1%  on  their 
investments,  during  the  last  ten  years,  but,  should 
they  sell  their  bonds,  they  would  find  that  the  pro- 
ceeds have  lost  30%  of  the  purchasing  pov/er  of  a 
similar  amount  ten  years  ago.  Altogether,  they 
have  suffered  a  net  loss,  over  incomes,  of  more  than 
20%,  or  over  2%  a  year." 

There  are  other  economic  influences  affect- 
ing interest  rates  through  gold  supply,  but  the 
one  given  appears  to  the  writer  the  most  di- 
rect and  forcible  when  applied  to  readjustment 
of  prices  to  income. 

In  weighing  the  influence  of  increasing  gold 
production  and  its  effect  upon  interest  rates 
through  the  advancing  prices  of  commodities, 
the  student  is  liable  to  fall  into  one  grave  error. 


84 

He  may  perhaps  jump  to  the  conclusion  that 
gradually  advancing  prices  of  commodities 
mean  gradually  advancing  rates  of  interest. 
This  is  not  at  all  the  case.  A  sustained  ratio 
of  advance  means  sustained  high  rates  of  in- 
terest— nothing  more.  In  order  to  make  this 
clear  let  us  go  back  to  the  original  principle. 

•  Increasing  prices  for  commodities  mean  an 
impairment  of  the  purchasing  power  of  money. 
If  the  purchasing  power  of  money  is  impaired 
2%  per  annum  through  increasing  prices  of 
commodities,  and  the  normal  rate  of  interest  is 
4%,  we  can  cover  the  deficiency  by  making  the 
interest  rate  6%  and  leaving  it  there  as  long 
as  this  ratio  of  impairment  is  maintained. 
In  other  words  the  man  who  loans  $1,000  at 
6%  loses  $20.00  per  annum  in  the  impairment 
of  capital  and  receives  normal  interest  of  $40.00 
per  annum  and  $20  extra  to  cover  his  loss  in 
capital.  Strictly  speaking  the  extra  2%  is  not 
interest  at  all,  but  an  amortization  payment.  It 
matters  not  how  high  prices  ultimately  go,  he 
receives  each  year  a  bonus  sufficient  to  cover 
his  loss  in  capital,  and  the  interest  rate  re- 
mains 6%. 

Therefore,  if  prices  of  commodities  advanced 
for  ten  years  and  then  ceased  to  advance,  but 
were  maintained  at  the  highest  figures  reached, 
interest  rates  would  fall  because  there  would 
be  no  further  impairment  of  capital,  and  what 


85 

was  formerly  amortization,  would  become 
usury.  On  the  other  hand,  if  a  new  ratio  of 
increase  should  occur  in  commodity  prices 
and  they  should  advance  4%  per  annum,  inter- 
est rates  would,  if  fully  adjusted,  reach 
8% — 4%  for  normal  interest,  and  4%  for  im- 
pairment of  capital. 

2 — The  effect  upon  Common  Stocks  of  Rail- 
road Corporations. 

Here  the  effect  of  high  interest  rates  is,  or 
in  time  may  be,  offset  by  returns  in  the  form 
of  dividends,  undivided  profits,  improvement  of 
property,  or  the  fact  that  income  is  not  limited. 
But  there  is  another  trouble,  and  a  serious  one, 
for  which  the  gold  supply  is  responsible. 

If  the  increasing  supply  of  gold  is  responsible 
for  higher  commodity  prices  it  must  be  at  once 
apparent  that  the  building,  equipment  and 
maintenance  of  railway  properties  costs  more 
and  more  as  all  commodities,  including  labor, 
advance  in  price.  This  would  be  all  right  if 
the  selling  commodity,  i.  e. :  transportation,  also 
advanced  proportionately  in  price;  but  it  is  so 
difficult  to  override  popular  prejudice  and 
widespread  misunderstanding  on  this  point, 
that  we  find  continued  agitation  and  legislation 
not  only  against  advancing  rates,  but  with  a 
view  to  reducing  those  which  already  obtain. 
There  must,  of  course,  be  a  limit  to  this  thing, 


86 

and  if  the  cost  ofc  production  continues  to  in- 
crease, the  railroads  must  be  permitted  to  de- 
mand higher  prices  for  transportation.  Other- 
wise a  point  would  finally  be  reached  where 
every  railroad  in  the  country  would  be  forced 
into  bankruptcy.  The  great  danger  lies  in  a 
belated  assimilation  of  this  truth  by  the 
masses,  and  too  much  demagoguery  on  the  part 
of  politicians  who  do  understand,  but,  being 
politicians,  prefer  to  reflect  the  views  of  a  ma- 
jority of  constituents,  rather  than  to  enter  a 
campaign  of  proselyting.  That  evils  have 
been  fostered  and  wrongs  committed  by  emi- 
nent railroad  financiers  is  certain;  but  there  is 
considerable  confusion  of  ideas  on  this  head. 
Over-capitalization,  illegal  combinations,  man- 
ipulation of  funds  for  private  gain,  and  the 
swelling  of  dividends  for  stock- jobbing  pur- 
poses, when  the  funds  so  distributed  should 
have  gone  into  improvements  or  surplus,  have 
all  played  their  part  in  arousing  the  wrath  and 
indignation  of  the  great  majority,  and  they  are, 
as  a  class,  prone  to  jump  to  the  conclusion  that 
any  and  every  railroad  corporation  is  charging 
unduly  high  rates  for  its  services,  and  making 
exorbitant  returns  on  invested  capital.  »  This 
has,  no  doubt,  been  more  or  less  true  in  the 
past  in  certain  cases  where  extremely  high 
rates  were  made,  and  the  apparent  returns  on 
money  attenuated  by  over-capitalization;  but 


this  evil  is  gradually  decreasing,  and  the  real 
fight  is,  or  should  be,  against  these  abuses. 
The  railroads  are  suffering  for  the  sins  of  the 
past,  and  may  suffer  still  further ;  but  the  time 
is  not  far  distant  when,  unless  conditions 
change  radically,  the  railroads  must  be  allowed 
more  latitude  in  the  adjustment  of  rates. 

The  prevalent  opinion,  that  needed  reforms 
which  strike  at  the  root  of  the  evils  mentioned 
above  is  a  bear  argument,  is  another  popular 
fallacy.  Such  reforms  intelligently  conceived, 
and  unswervingly  carried  out,  are  all  in  favor 
of  the  small  shareholder.  If  laws  can  be  en- 
acted which  will  prevent  individual  interests 
from  plundering  or  misusing  the  funds  of  cor- 
porations, and  which  will  compel  these  corpo- 
rations to  issue  reports  and  statements  which 
are  not  so  involved  and  complex  as  to  be  be- 
yond the  ordinary  comprehension,  the  small 
holder  or  investor  will  have  a  better  show. 
But,  having  cured  these  evils,  no  laws  can  pos- 
sibly endure  which  contemplate  curtailing  fair 
returns  on  money,  and  fair  profits  through 
natural  enhancement  in  values. 

But,  however  fair  or  cheering  this  view  may 
appear,  the  fact  remains  that  it  will  be  slow  in 
its  acceptance  and  slower  in  its  operation.  We 
may  therefore  summarize  the  situation  thus. 
Increasing  production  of  gold  brings  about  in- 
creasing cost  of  operation,  and  so  long  as  cost 


88 

of  operation  is  advanced  with  no  corresponding 
advance  in  selling  price  of  transportation,  the 
ratio  of  profits  will  gradually  decrease  until  a 
vanishing  point  is  reached. 

In  the  last  analysis,  a  probable  tardy  and  re- 
luctant recognition  of  the  true  status  of  the 
case  warrants  the  belief  that  for  the  near  fu- 
ture, the  railroads  have  a  hard  time  ahead  of 
them,  and  that  so  far  as  this  single  important 
influence  is  concerned,  it  is  decidedly  a  bearish 
factor. 

3 — The  effect  upon  stocks  of  industrial  cor- 
porations. 

Here  we  have  a  different  proposition.  Rising 
prices  for  commodities  do  not  interfere  with 
the  earning  power  of  corporations  which  pro- 
duce and  sell  commodities,  the  prices  of  which 
are  not  limited  by  law.  In  fact  these  corpora- 
tions are,  in  many  cases,  gainers  by  this  in- 
fluence which  tends  to  advance  prices,  not  only 
of  what  they  buy,  but  of  what  they  sell.  It 
may  be  added,  parenthetically,  that  railroad 
companies  which  own  valuable  coal  lands,  etc., 
find  the  bad  influences  already  discussed  par- 
tially offset  by  the  gain  from  such  holdings. 
The  railroad  company,  however,  may  be  con- 
sidered as  pre-eminently  a  seller  of  transpor- 
tation and  has  been  so  regarded  herein. 

The  industrial  corporations  whose  products 


89 

subject  to  regulation  by  law,  such  as  gas 
and  electric  lighting  companies,  are  subject  to 
practically  the  same  influences  as  those  which 
operate  against  the  prices  of  railroad  stocks. 
Their  cost  of  production  advances  easily  and 
inevitably,  and  the  selling  price  remains  fixed, 
or  advances  with  difficulty  and  under  protest. 

4 — The  effect  on  speculative  commodities- 
Wheat,  Corn,  Oats,  Cotton,  etc. 

This  phase  of  the  subject  will  be  dismissed 
with  a  few  words.  If  the  contentions  already 
made  are  accepted,  it  is  apparent  that  all  such 
commodities  will  gradually  seek  a  higher  level. 
A  brief  examination  of  statistics  will  show 
that  this  readjustment  has  been  going  on  for 
years.  The  gradually  ascending  pivotal  point, 
or  average  price,  is  particularly  marked  in  the 
cheaper  cereals, — corn  and  oats,  and  also  in 
cotton.  This  is  probably  due  to  the  fact  that 
wages  have  not  advanced  as  rapidly  as  have 
prices  of  living.  It  is  found  that  in  periods  of 
hard  times  consumption  of  cheaper  foodstuffs 
and  textile  fabrics  is  increased,  while  the  con- 
sumption of  higher  priced  commodities  and 
luxuries  are  curtailed.  The  wage-earner,  there- 
fore, has  been  in  reality  living  in  a  regime  of 
hard  times,  although  this  fact  is  easily  sub- 
merged by  steadier  employment,  by  a  fictitious 
appearance  of  general  prosperity,  and  the  abil- 


90 

ity  to  spend  a  larger  number  of  dollars,  without 
realizing  fully  the  loss  of  purchasing  power  i* 
trie  dollars. 

It  would  be  out  of  the  question  to  attempt  to 
enter  anything  like  a  comprehensive  study  of 
the  question  of  gold  production  and  its  effects 
in  a  single  chapter,  or  even  in  a  single  volume ; 
neither  is  it  necessary  to  the  purposes  of  this 
work,  for  the  student  who  desires  a  compre- 
hensive education  in  this  regard  will  find  ample 
means  and  material  ready  to  his  hand.  From 
the  standpoint  of  investment  and  speculation 
alone,  it  is  submitted  that  increasing  produc- 
tion of  gold  is,  to  use  the  phraseology  of  the 
street,  bearish  on  long  time  bonds  and  other 
securities  yielding  a  limited  rate  of  interest  or 
income,  temporarily  bearish  on  railroad  stocks, 
bullish  on  industrial  shares,  except  as  noted, 
and  bullish  on  speculative  commodities. 

At  the  risk  of  indulging  in  undue  reitera- 
tion, attention  will  again  be  called  to  the 
fallacy  of  considering  such  subjects  as  the 
one  of  gold  production  too  remote  in  concrete 
effects,  or  too  sluggish  in  operation  to  be  of  im- 
portance to  the  speculator.  A  thorough  under- 
standing of  cause  and  effect  bears  upon  the 
operations  of  today,  in  that  it  anticipates  the 
results  of  tomorrow  Through  knowledge  of 
influences  of  this  character,  serious  error  may 
be  avoided.  For  example,  one  of  the  profound 


91 

axioms  of  the  speculative  world  is  that  bonds 
advance  first  and  stocks  afterwards.  If  we 
understand  why  bonds  have  been,  and  are  at 
present,  declining  we  may  be  justified  in  modi- 
fying this  view  and  considering  the  axiom  more 
or  less  obsolete.  He  who  operates  an  engine 
without  a  clear  understanding  of  its  motive 
power  is  likely  to  get  into  trouble,  or  perhaps 
be  blown  up. 

It  may  be  pointed  out  also,  that  a  too  literal 
acceptance  of  the  suggested  effects  of  this  or 
any  other  great  price  influence  is  highly  dan- 
gerous. Even  while  gold  production  continues 
to  increase  rapidly,  prices,  not  only  of  shares, 
but  of  all  things,  will  overleap  themselves  and 
will  also  swing  backwards  to  the  other  ex- 
treme. The  cycles  are  not  completed,  until 
both  zenith  and  nadir  have  been  touched. 
Changes  in  gold  production  will  not  prevent 
declines  in  prices;  they  will,  however,  inter- 
fere with  the  regularity  of  the  cycles. 

This  chapter  may  be  fittingly  closed  with  the 
following  list  of  conclusions  reached  by  Mr. 
Holt,  in  the  work  already  mentioned.  These 
conclusions  cover  all  the  points  herein  pre- 
sented, and  others  which  are  of  interest  and 
yalue : 

"1— That  both  the  output  and  supply  of  gold  are 
likely  to  increase  rapidly  for  many  years. 


92 

"2 — That,  therefore,  the  value  of  gold  will  depre- 
ciate as  the  quantity  increases. 

"3 — That  this  depreciation  will  be  measured  by 
the  rise  in  the  average  price  level. 

"4 — That  a  rising  price  level,  if  long  continued,  is 
accompanied  by  rising  or  high  interest  rates. 

"5 — That  high  interest  rates  mean  lower  prices  for 
bonds  and  all  other  long-time  obligations  drawing 
fixed  rates  of  interest,  dividends,  or  income. 

"6 — Rising  prices  increase  the  cost  of  materials 
and  of  operation  and  tend  to  decrease  the  net  profits 
of  all  concerns,  the  prices  of  whose  products  or  ser- 
vices either  cannot  be  advanced  at  all,  or  are  not 
free  to  advance  rapidly. 

"7 — Rising  prices  tend  to  increase  the  net  profits 
of  all  concerns  that  own  their  own  sources  of  mate- 
rials and  supplies. 

"8 — Rising  prices  of  commodities  tend  to  cause 
the  prices  of  all  tangible  property  to  rise.  This  in- 
cludes lands,  mines,  forests,  buildings  and  improve- 
ments. 

"9 — Rising  prices  of  commodities  and  property 
tend  to  increase  the  value  of  the  securities  of  corpo- 
rations holding  commodities  or  property. 

"10 — Rising  prices  and  cost  of  living  necessitate 
higher  money  wages,  though  the  rise  of  wages  will 
follow,  at  some  distance,  behind  the  rise  of  prices. 

"11 — As  rising  prices  do  not  mean  increased 
profits  to  all  concerns,  many  employers  will  not  con- 
cede higher  wages  without  strikes. 

"12 — Rising  prices  and  wages,  therefore,  mean 
dwindling  profits  and  troublous  times  in  many  in- 
dustries, with  complete  ruin  as  the  final  goal. 

"13 — Because  wages  will  not  rise  as  fast  or  as 
much  as  prices  and  the  cost  of  living,  there  will  be 


93 

dissatisfaction  and  unrest  among  wage  and  salary 
earners. 

"14 — Rising  prices  of  commodities  and  property 
encourage  speculation  in  commodities,  stocks  and 
real  estate  'and  discourage  honest  industry. 

"15 — Thus,  rising  prices,  by  diminishing  the  in- 
comes of  'safe'  investments  in  'gilt-edged'  bonds  and 
stocks  and  by  increasing  the  profits  of  speculators 
encourage  extravagance,  recklessness  and  thriftless- 
ness. 

"16 — As  rising  prices  decrease  the  purchasing 
power  of  debts,  and  thus  aid  debtors  at  the  expense 
of  creditors,  they  discourage  saving  and  thrift. 

"17 — Rising  prices,  then,  by  promoting  specula- 
tion and  extravagance,  increase  consumption,  espe- 
cially of  luxuries,  and,  therefore,  stimulate  produc- 
tion. 

"18 — Rising  prices,  then,  result  in  what  is  real 
prosperity  for  many  industries;  but  what  is  for  a 
nation  as  a  whole,  artificial  or  sham  prosperity — the 
result  of  marking  up  prices  rather  than  of  increasing 
production. 

"19 — With  prices,  wages,  rates  and  industries  al- 
ways imperfectly  adjusted  to  the  ever  depreciating 
value  of  gold,  and  with  instability  and  uncertainty 
throughout  the  financial  world,  there  cannot  but  be 
a  great  shifting  around  of  values  and  of  titles  to 
property. 

"20 — As  this  shifting  is  to  the  advantage  of  the 
debtors — the  rich — and  to  the  disadvantage  of  the 
creditors — the  great  middle  class — it  results  in  rap- 
idly concentrating  wealth  in  the  hands  of  a  compara- 
tively few. 

"21 — For  all  of  these  reasons  a  prolonged  period 
of  rapidly  rising  prices  is  reasonably  certain  to  be- 


come  a  period  of  unrest,  discontent,  agitation, 
strikes,  riots,  rebellions  and  wars.  * 

4  "22 — A  rapidly  depreciating  standard  of  Value 
then,  if  long  continued,  not  only  produces  most  im- 
portant results  in  the  financial,  industrial  and  com- 
mercial world,  but  is  likely  to  result  in  changes  of 
great  consequence  in  the  political,  social,  and  relig- 
ious world. 

"In  view  of  all  the  facts,  results  and  possible  con- 
sequences connected  with  the  increasing  output  and 
supply  of  gold,  The  Wall  Street  Journal  was  right 
when,  on  December  4,  1906,  it  said  that  'No  other 
economic  force  is  at  present  in  operation  in  the 
world  of  more  stupendous  power  than  that  of  gold 
production.' " 


APPENDIX 


APPENDIX. 

The  foregoing  letters  were  originally  pub- 
lished in  pamphlet  form  as  a  portion  of  the 
regular  market  letter  service.  After  the  pam- 
phlet was  distributed  several  students  whose 
views  are  entitled  to  respectful  consideration 
excepted  to  some  of  the  contentions  offered. 
In  order  to  give  the  dissenters  a  fair  show,  let- 
ters received  from  Mr.  Charles  A.  Conant,  Mr. 
A.  Selwyn-Brown  and  Mr.  A.  E.  Cottier  are 
added  to  the  volume.  Other  letters  of  objec- 
tion or  modification  were  received  but  all  the 
points  mentioned  are  covered  by  the  three  au- 
thorities mentioned  above. 

Mr.  Byron  W.  Holt  replies  to  the  non-ac- 
quiescent writers. 

T.  G. 


The  History  of  Prices* 

By    ARTHUR    SELWYN-BROWN,    E.M.,    M.A.,    B.Sc.,    Etc. 

Speculation  is  based  upon  the  science  of 
values.  Values,  like  all  scientific  problems,  can 
only  be  reliably  determined  by  "ample  and 
accurate  information"  regarding  the  present 
and  past.  The  future  is  only  interpretable 
through  experience.  The  values  of  to-morrow 
can  only  be  gauged  by  a  study  of  the  values  of 
yesterday  and  to-day  combined  with  a  variable 
factor  joining  the  psychic  factors  of  the  mo- 
ment of  evaluation  with  the  concomitant  factors 
of  progressive  evolution  and  socialization. 
Prices,  or  values  expressed  in  money,  through 
social  evolution  appear  to  progressively  in- 
crease when  viewed  over  long  periods  of  time. 
It  is  proposed  in  this  article  to  briefly  review 
the  history  of  prices  of  a  series  of  years  with 
the  view  of  exhibiting  the  comparatively 

*  This  article  was  specially  prepared  for  Thomas  Gibson's 
Market  Letter  Service  by  Mr.  Selwyn-Brown. 

97 


98 

gradual  evolutionary  processes  of  evaluation  of 
commodities  as  shown  by  tables  of  prices  and 
articles  of  general  consumption  and  to  indicate 
the  ability  of  the  price-making  processes  to  ade- 
quately adjust  themselves  at  all  times  to  the 
needs  of  progressive  civilization. 

It  is  only  comparatively  recently  that  econ- 
omists have  recognized  the  value  of  systemat- 
ically investigating  the  history  of  prices.  Some 
excellent  essays  dealing  with  this  subject  have 
been  published  during  the  last  half  century, 
but  a  complete  history  of  prices  has  never  been 
written. 

The  important  position  as  a  foodstuff  held  by 
wheat  makes  it  an  excellent  indicator  of  the 
fluctuations  of  values.  Better  records,  also, 
have  been  kept  of  wheat  prices  throughout  the 
ages  than  of  any  other  commodity.  In  Table  I. 
is  shown  the  variations  in  wheat  prices  over  a 
period  of  2,500  years.  This  table  gives  the  aver- 
age prices  of  wheat  from  the  year  600  B.  C.  to 
1908.  The  prices  from  1401  to  date  are  those 
of  the  London  markets. 

The  figures  in  Table  I.,  it  will  be  noticed, 
show  that  the  average  price  of  wheat  rose  very 
gradually  between  the  years  600  B.  C.  and 
1500  A.  D.  During  this  period  the  popu- 
lation of  the  civilized  world  increased  very 
slowly.  The  processes  of  socialization,  or  the 
civilizing  influences,  were  not  then  very  active. 


99 
TABLE  I. 

AVERAGE    PRICES    OF    WHEAT    FOR    2508    YEARS. 

Price 
Period.  per  Ton. 

B.C.  600 £1.1.6 

300 1.5.0 

200 1.6.0 

50 1.7-0 

A.  D.     50 —  300 1.7.6 

301 —  500 1.8.0 

501 —  800 1.8.6 

801 — 1307 i.g.o 

1401 — 1500 1.8.6 

1501 — 1600 1.16.0 

1601 — 1650 2.4.6 

1651 — 1700 2.18.0 

1701 — 1750 .  3.12.0 

1751 — 1800 6.0.0 

1801 — 1850 12.0.0 

1851 — 1880 13.5.0 

1881 — 1889 9.5.0 

1890 — 1899 6.9.6 

1900 — 1908 7.0.3 

No  great  price  movement  took  place  until 
the  middle  of  the  i6th  century.  The  political 
unrest  in  Eastern  Europe  culminating  in  the 
conquest  of  Constantinople  by  the  Turks  insti- 
gated political  and  commercial  changes  which 
had  far-reaching  effects  upon  the  political  and 
financial  development  of  the  world. 


100 

Before  the  Turkish  conquest  of  the  "Gate  to 
the  East,'*  the  Oriental  trade  was  controlled 
exclusively  by  the  Venetians.  Their  monopoly 
was,  of  course,  exceedingly  profitable,  and  was 
envied  by  the  other  European  nations.  When 
the  Turks  cut  off  the  trade  the  princes  of 
Europe  all  endeavored  to  discover  new  routes 
with  the  view  of  restoring  it  with  profit  to 
themselves.  Prince  Henry  of  Portugal  was  one 
of  the  most  able  of  the  princes  of  the  time  and 
he  strenuously  advocated  the  searching  for  a 
sea  route  south  of  Africa.  The  results  of  his 
efforts  were  successful.  In  1598,  Vasco  De 
Gama,  one  of  his  assistants,  sailed  around  the 
Cape  of  Good  Hope  and  visited  the  principal 
towns  on  the  Malabar  coast  of  India. 

This  success  of  the  Portuguese  stimulated 
the  ambitions  of  the  Spaniards,  who  were  prom- 
ised title  by  the  Bull  of  Demarcation  of  Pope 
Alexander  VI.,  to  all  the  discoveries  they  might 
make  to  the  westward  of  a  line  drawn  north 
and  south  through  the  Atlantic  Ocean  100 
leagues  west  of  the  Azores.  This  resulted  in 
the  discovery  of  America.  The  Portuguese  and 
Spaniards  not  being  very  skillful  in  commerce, 
the  carrying  and  distributing  trades  in  Europe 
were  developed  by  the  Dutch. 

The  great  commercial  activities  of  the  i6th 
and  i  yth  centuries  are  reflected  in  the  increase 
in  wheat  prices.  Following  the  increase  in 
prices  and  the  good  times  they  indicate  there 


101 

was  a  considerable  increase  in  the  population 
of  the  civilized  world.  The  new  trades  which 
were  established  in  the  new  countries  that  were 
being  opened  up  by  the  Portuguese  and  Span- 
iards necessitated  improved  commercial  meth- 
ods and  credit  facilities.  These  in  turn  required 
corresponding  increases  in  the  metallic  money 
reserves  which  were  met  by  importation  from 
America.  In  the  period  between  1500  and  1700 
there  was  a  very  considerable  increase  in  com- 
modity prices.  The  successive  increments  in 
prices  indicated  prosperity  which  in  turn  was 
followed  by  an  increased  population  and  the 
civilization  of  large  numbers  of  previously  un- 
civilized people.  These  processes  still  continue 
and  profoundly  influence  the  demand  for  goods 
and  their  prices. 

Demand  usually  controls  supply,  and  supply 
is  usually  adapted  to  demand.  Demand  and 
value  are  so  intimately  related  that  changes  in 
one  affect  the  other.  Consequently  the  history 
of  prices  should  indicate  changes  in  man's 
wants  as  well  as  of  his  activities.  In  early  his- 
torical times  man's  wants  were  few  and  easily 
satisfied.  Each  man  usually  raised  his  own  food 
and  weaved  the  materials  for  his  own  apparel. 
To-day,  of  course,  our  wants  are  manifold  and 
require  the  fullest  resources  of  our  complex 
civilization  to  attend  to  them.  Contrasts  be- 
tween the  prices  of  articles  in  general  use  in 
early  times — say,  in  Roman  times — with  those 


102 

of  similar  articles  marketed  to-day  may  be  use- 
fully employed  to  indicate  our  advancement  in 
socialization,  or,  as  it  may  be  broadly  termed, 
civilization. 

One  of  the  earliest  lists  of  prices  surviving 
Roman  times  is  that  of  the  Emperor  Diocletian, 
issued  in  an  imperial  decree  in  A.  D.  303  and 
fixing  prices  of  commodities  for  the  whole 
Roman  Empire.  Table  II.  is  compiled  from 
that  decree. 


TABLE  II. 

DIOCLETIAN'S  PRICES  FOR  ROMAN  EMPIRE,  A.D.  303.* 

Wine.  Per  pint. 

Falernian 3oc. 

Ordinary 2oc. 

Rustic 8c. 

Vinegar 6c. 

Beer 40. 

Olive  Oil 4°c. 

Meat.  Per  Ib. 

Beef 8c. 

Mutton 8c. 

Lamb I2C. 

Pork I2C. 

Ham 2oc. 

Fish  .                                                      ...  ice. 


103 

Game.  Each. 

Ducks 6oc. 

Hens goc. 

Goose 1.50 

Clothing. 

Socks 6c. 

Breeches 3oc. 

Cloak 6oc. 

Shoes 2.00 

*  Expressed   in   American  equivalents. 

According  to  the  Dugdale  MSS.  in  the  Ash- 
molean  Museum,  Oxford,  the  stock  on  a  farm 
in  Warwickshire,  England,  was  valued  and 
recorded  on  September  12,  1290.  From  this 
record  Table  III.  was  compiled. 

TABLE  III. 

FARM   PRODUCTS   IN   WARWICKSHIRE,    1290. 

Each 
£  s.  d. 

ii  Oxen 9.0.0 

3  Riding  horses 1.6.8 

3  Carts 5.8 

2  Tame  deer 1.8 

2  Boars 3.0 

5  Sows 2.6 

28  Hogs,  not  full  grown     1.6 

18  Weaned  pigs .5 

15  Sucking  pigs 3 


104 

TABLE    III — Continued 

Each 
£  s.  d. 

21  Ducks .1 

20  Bacon  hogs 3.4 

18  Silver  Spoons 10 

The  prices  given  in  this  table  are  representa- 
tive of  those  ruling  in  the  country  districts  in 
England  at  that  time.  Those  in  London  were 
about  50  per  cent,  higher.  It  will  be  seen  on 
contrasting  the  prices  in  Table  III.  with 
those  in  Table  II.  wherever  possible,  as,  for 
instance,  those  of  poultry  and  meat,  that  little, 
or  no,  advance  was  made  during  a  period 
of  nearly  1,000  years.  Table  I.  shows  there 
was  also  in  that  time  practically  no  change 
in  the  price  of  wheat.  The  world  went  very 
slow  during  that  period  and  there  was  little, 
or  no,  material  advancement  in  human  wants. 
It  was  essentially  a  period  of  contemplation. 
Men  watched  the  intellectual  combats  be- 
tween the  Philosophers  of  the  Neo-Platonic 
schools  and  the  bishops  of  the  church  and 
saw  the  church  victorious.  In  the  history  of 
philosophy  this  period  is  very  important.  It 
embraces  the  whole  of  what  is  called  the  Re- 
ligious Period  and  a  part  of  the  Middle  Ages. 

Forces  were  now  gathering  strength  which 
were  to  become  active  in  advancing  prices  sev- 
eral centuries  later.  While  they  were  being 
developed,  however,  men's  attention  was  di- 


105 

rected  to  intellectual  and  spiritual  matters. 
Pessimism  was  almost  universally  prevalent 
and  the  worldly  desires  of  the  race  remaining 
unchanged,  prices  ran  along  in  their  old 
grooves  as  is  shown  in  the  table. 

The  influences  of  population  on  prices  are 
suggested  when  it  is  recognized  that  desire 
determines  supply  and  supply  is  correlated  to 
value  and  price.  In  the  process  of  socialization, 
suggestion,  invention  and  imitation  are  the 
most  active  factors.  An  idea  flashes  into  the 
mind,  or  is  invented.  When  novel  and  inter- 
esting it  is  frequently  communicated  to  others 
and  acts  on  them  by  suggestion.  The  action, 
or  desire,  stimulated  will  vary  according  to  the 
class  and  number  of  people  who  adopt  the  sug- 
gestion. If  the  desire  is  for  a  certain  article  of 
commerce,  the  intensity  of  the  desire,  or  the 
number  of  calls  for  it,  will  be  a  measure  of  any 
consequent  fluctuation  in  price.  The  produc- 
tion and  distribution  of  commodities  are  con- 
trolled by  desires,  which  are  themselves  re- 
sponsive to  the  alternative  and  successive  fits 
of  optimism  and  pessimism  experienced  by 
mankind,  and  by  the  other  factors  of  social 
progress.  Just  as  socialization  tends  either 
toward  progress  or  decay,  so  desires  corre- 
spondingly advance  or  decline  in  rhythmic 
sequence. 


106 

TABLE  IV. 

POPULATION,   14  B.  C. 

Italy 6,000,000 

Spain  6,000,000 

Greece 3,000,000 

Gaul 3,400,000 

Other  countries 4.600,000 

Europe 23,000,000 

Asia 19,500,000 

Africa 11,500,000 

World 54,000,000 

Malthus,  in  1803,  was  the  first  to  demon- 
strate the  fact  that  population  has  at  all  times 
tended  to  outgrow  subsistence.  When  living 
under  perfectly  happy  and  virtuous  conditions 
a  community  is  naturally  constrained  to  in- 
crease. While  the  means  of  subsistence  in- 
creases in  arithmetical  progression,  the  popu- 
lation tends  to  increase  in  geometrical  ratio. 
Self-restraint,  emigration,  starvation,  vice  and 
other  degenerative  influences  are  the  regulators 
of  population,  and  they  all  influence  prices. 

The  writings  of  Malthus  inspired  Darwin's 
biological  researches  which  led  him  to  the  dis- 
covery of  the  law  of  organic  reproduction.  Ex- 
pressed in  popular  terms  the  law  is  as  follows : 
There  is  an  innate  tendency  of  all  organic  life 
to  increase  until  neighbors  press  upon  the  limit 
of  food  supply  or  production  causing  starvation 
and  the  consequent  elimination  of  the  weak  and 
less  fit  members. 


107 


TABLE  V. 

POPULATION   OF  WORLD,    1480—1908. 


1480. 


1580. 


1680. 


England 3,700,000      4,600,000       5,532,000 

France 12,600,000     14,300,000     18,800,000 

Prussia 800,000       1,000,000       1,400,000 

Russia 2,100,000      4,300,000     12,600,000 

Austria 9,500,000     16,500,000     14,000,000 

Italy 9,200,000     10,400,000     11,500,000 

Spain 8,800,000      8,150,000      9,200,000 

United  States 

Australasia 

India 

China    

Japan  

1780.             1880.  1908. 

England 9,561,000     35,004,000  44,000,000 

France 25,100,000     37,400,000  39,000,000 

Prussia 5.460,000     45,260,000  61,000,000 

Russia 26,800,000     84,440,000  120,000,000 

Austria 20,200,000     37,830,000  50,000,000 

Italy 12,800,000     28,900,000  34,000,000 

Spain 9,960,000     16,290,000  21,000,000 

United  States   ....     3,500,000     50,155,783  87,000,000 

Australasia 6,600,000 

India 300,000,000 

China 410,000,000 

Japan 52,000,000 

Population  statistics  constitute  not  merely 
biological  studies  showing  the  growth  of  the 
race,  but  the  continuation  and  development  of 
social  institutions.  They  also,  as  was  indicated 
above,  measure  the  degrees  of  happiness  and 


108 

prosperity  of  the  people  of  different  periods; 
because  in  times  of  stress  and  turmoil  few 
marriages  are  consummated  and  births  are  re- 
duced, whereas  in  times  of  general  well-being 
the  contrary  is  true.  Times  when  high  prices 
are  universal  are  invariably  times  of  happiness 
and  prosperity. 

Comparisons  of  Tables  IV.  and  V.  with 
Table  I.  will  indicate  the  influence  of  popula- 
tion on  the  prices  of  wheat,  and  incidentally 
will  plainly  show  the  course  of  civilization. 

The  opening  up  of  both  North  and  South 
America  and  Australasia  to  European  emi- 
grants has  greatly  influenced  prices  in  re- 
cent years.  The  emigrants  are  engaged  in  de- 
veloping some  of  the  richest  portions  of  the 
earth  and  are  creating  a  stupendous  commerce 
which  will  not  only  greatly  advance  their  own 
new  countries,  but  which  will  prove  very  bene- 
ficial to  Europe  and  powerfully  influence  prices 
the  world  over. 

An  English  statistician  named  Newmarch, 
when  writing  for  the  "Economist,"  London, 
devised  a  unique  method  of  showing  the  varia- 
tions in  commodity  prices.  Adopting  the  aver- 
age price  of  each  important  article  sold  in 
London  in  any  year  taken  as  a  basis  of  com- 
parison, in  the  specific  case  referred  to,  the 
prices  of  22  articles  sold  in  London  in  1845- 
!  850— the  prices  in  following  years  were  re- 


109 

duced,  without  loading  to  offset  adverse  factors 
that  were  liable  to  influence  simple  averages. 
The  averages  in  1845-1850  were  taken  as  100 
and  the  prices  of  subsequent  years  were  ex- 
pressed as  percentages  of  the  initial  prices.  The 
sum  of  such  percentages  in  each  year  forms 
the  index  number  for  that  year.  As  22  articles 
were  selected  the  basic  index  number  for  all 
is  2,200.  The  value  of  such  a  method  for  popu- 
larly demonstrating  price  variations  was  imme- 
diately appreciated  and  this  method,  variously 
modified,  is  now  universally  employed  by 
economists  and  statisticians. 

Index  numbers  have  been  published  at 
frequent  intervals  by  the  "Economist"  and 
Sauerbeck  for  English  prices;  Laspeyres, 
Paasche,  Conrad,  Krai,  Soetbeer  and  Heinz,  for 
German  prices;  D'Avenel,  Palgrave  and  Falk- 
ner  for  French  prices;  Dun's  Review,  Brad- 
street's  Review  and  Falkner  for  American 
prices,  and  by  other  authorities  in  other  coun- 
tries. Table  VI.,  compiled  from  Mr.  Sauer- 
beck's valuable  papers  on  English  prices  in  the 
proceedings  of  the  Royal  Statistical  Society, 
London,  gives  representative  index  numbers 
covering  the  years  1846-1907.  In  view  of  the 
equalizing  effects  of  the  electric  telegraphs  and 
cables  and  modern  commercial  methods,  as 
well  as  the  great  extent  of  international  com- 
merce, Table  VI.  covering  London  market 


110 

values  may  be  taken  as  a  typical  barometer  of 
the  world's  price  variations  during  the  period 
covered. 

In  this  brief  sketch  of  the  history  of  prices 
it  has  only  been  possible  to  lightly  refer  to  a 
few  important  epochs  in  such  history,  notwith- 
standing that  the  accompanying  tables  contain 
many  extraordinary  statistics  calling  for  com- 
ment. All  references  to  the  important  influ- 
ences the  inventions  of  steam,  electricity  and 
chemical  and  manufacturing  processes  on  prices 
have  been  suppressed.  It  is  hoped,  however, 
that  sufficient  has  been  said  to  indicate  that 
prices  are  as  variable  as  human  desires  and 
reflect  those  desires.  They  are  not  constrained 
by  any  hard  and  narrow  economic  law. 

Regarding  the  future,  it  may  be  said  there  is 
no  possibility  of  a  check  to  the  general  ad- 
vancement of  prices.  The  prices  of  specific 
articles  may  vary  spasmodically;  but  mankind 
is  destined  to  progress  more  rapidly  in  the 
future  than  in  the  past,  and  the  hordes  of  Asia 
are  likely  to  be  soon  civilized.  Such  progress 
and  advancement  must  in  the  future,  as  in  the 
past,  become  reflected  in  demand  and  prices — 
prices  must  continue  to  advance. 

In  the  table  on  pages  111-114  tne  first  nine 
columns  represent  the  Sauerbeck  Index  num- 
bers. The  three  remaining  columns  are  com- 
piled from  London  financial  statistics. 


Ill 


Avg.  Bank  of 
England  Rate. 

CO 

Avg.  Price  of 
Consols. 

0 

H 

to 

H 

Silver. 

H 

co 

3 

Grand  Total. 

0 

2 

Total 

2 

Materials. 

fe 

2 

Sundry 

0 

Materials. 

. 

Q 

t—  1 

0 

Textiles. 

w 

H) 

« 

§ 

Minerals. 

H 

CO 

« 

W 

PQ 

Total  Food. 

§ 

2 

Sugar,  Coffee, 

X 

and    Tea. 

Q 

2 

Animal  Food 

HH 

(Meat,  etc.) 

CO 

0 

w 
n 

Vegetable  Food 
(Corn,  etc.) 

K 

tD 

CO 

Year. 

N'-''-HU^'-< 

O  O  O  O  Cft 


O  O  O  Cft  O^  CTi 


i-iOOcO'-i 

ooooooo< 


o<vovovooooooooo 


^•^-^-^- 

OOOOOOOO 


oooooooooooooooooooooo 


112 


<-» 

f 


Avg.  Bank  of 
England  Rate. 


Avg.  Price  of 

Consols. 


Silver. 


Grand  Total. 


Total 
Materials. 


Sundry 
Materials. 


Textiles. 


Minerals. 


Total  Food. 


Sugar,  Coffee, 
and    Tea. 


Animal  Food 
(Meat,  etc.! 


Vegetable  Food 
(Corn,  etc.) 


Year. 


SvOi-t 
oo 


oooo 


ooo\a»ooooooo 


vovovDOvo 

00  00  00  00  00 


00  00  00  00  00  00  00 


Avg.  Bank  of 
England  Rate. 


Avg.  Price  of 
Consols. 


Silver. 


Grand  Total. 


Total 
Materials. 


Sundry 
Materials. 


Textiles. 


Minerals. 


Total  Food. 


Sugar,  Coffee, 
and    Tea. 


Animal  Food 
(Meat,  etc.) 

Vegetable  Food 
(Corn,  etc.) 


Year. 


. 

OOOOOOOOOOOOOOt^VOVOvOVOVOvOVO 


oo^- 

lOvO 


ocnooooo^oooot^ 


MVOCVlT-i^-iOO 

oooooooooooooo 


r^r^OOOOOOOOOOOOOOOOOOOOC*CT>C*<^a> 

oooooooooooooooooooooooooooooooooo 


114 


Avg.  Bank  of 
England  Rate. 

Avg.  Price  of 
Consols. 

Silver. 

Grand  Total. 

Total 
Materials. 

1 

Sundry 
Materials. 

.E  VI—  Cont 

Textiles. 
Minerals. 

HH 

PQ 

Total  Food. 

H 

Sugar,  Coffee, 
and    Tea. 

Animal  Food 
(Meat,  etc.) 

Vegetable  Food 
(Corn,  etc.) 

Year. 

x^   N*     N"   N^ 

gsSssgasJSgss 


S»-i 
vO 


§O^  O^  O^  O^  O  ^3  O  ^D 
QO  00  OO  CO  O>  O^  CTi  O> 


£  3 
O   g 

*o 


2  g 

03  "  v 


- 


v  M 

t;  c 


Till 

Silf 

2ss| 

?rs 


Gold  Production  and  Prices* 

By   CHARLES   A.    CONANT, 

Ex-Treasurer   of    Morton   Trust    Co.,    author    of    "A    History   of 

Modern    Banks    of    Issue;"    "Principles    of    Money    and 

Banking;"  "Wall  Street  and  the  Country,"  etc.,  etc. 

In  my  opinion  the  quantity  theory  is  given 
an  altogether  disproportionate  importance  in 
many  discussions  in  regard  to  the  value  of 
money.  It  is  probable  that  prices  are  influ- 
enced by  great  and  permanent  changes  in  the 
quantity  of  metallic  money,  but  this  influence 
is  only  one  of  several  and  may  be  entirely 
counteracted  by  the  others.  From  a  scientific 
point  of  view,  the  subject  calls  for  careful 
definitions  and  fine  distinctions  and  it  is  diffi- 
cult to  deal  with  it  in  a  satisfactory  manner 
in  limited  space.  While  stability  of  value  in 
the  monetary  unit  is  generally  treated  as  an 
important  aim,  even  this  term  "stability"  is 
often  used  in  a  careless  and  misleading  man- 
ner. There  may  be  apparent  appreciation  in 
the  purchasing  power  of  gold,  which  arises 
from  improvement  in  methods  of  production, 
permitting  a  larger  quantity  of  goods  to  be 
exchanged  for  the  same  amount  of  gold. 

*  Specially  written  for  this  volume  by  Mr.   Conant. 
115 


116 

There  may  be  apparent  depreciation  in  the 
purchasing  power  of  gold,  arising  from  scarcity 
of  given  articles  or  difficulty  in  obtaining  them. 
In  either  case,  it  is  not  strictly  the  value  of 
gold  which  has  changed,  but  the  value  of  par- 
ticular commodities.  The  clarifying  of  this 
problem  is  the  subject  of  an  entire  book  by 
Professor  C.  N.  Walsh,  "The  Fundamental 
Problem  in  Monetary  Science." 

It  is  my  opinion  that  while  the  quantity  of 
money  is  one  of  several  influences  operating 
upon  the  price  of  commodities,  it  is  often 
counteracted, — although  it  may  be  sometimes 
accelerated, — by  other  influences  and  that  these 
considerations  make  it  impossible  to  isolate 
practically  the  influence  of  changes  in  the 
quantity  of  money  upon  prices.  It  may  be 
possible  to  construct  a  theoretical  formula 
which  meets  the  problem,  but  it  is  not  possible 
to  separate  the  data  in  such  a  way  as  to  justify 
any  dogmatic  mathematical  conclusions.  More- 
over, in  my  opinion,  the  quantity  theory,  in  the 
sense  of  a  uniform  rise  of  prices  can  never  be 
realized  at  any  single  moment,  no  matter  how 
much  time  is  given  for  adjustment.  If  the 
quantity  of  gold  in  the  market,  operating 
through  increased  bank  reserves,  permits  wide 
extensions  of  credit,  and  prices  are  thereby 
affected,  it  will  be  articles  which  are  most  sen- 
sitive to  changes  of  price  which  will  first  feel 
the  influence.  These  changes  will  react  upon 


117 

the  prices  of  other  articles,  but  the  entire  prob- 
lem will  become  one  of  constant  inter-related 
changes  instead  of  one  of  a  final  rise  or  fall  of 
all  prices  to  a  point  which  will  leave  them  in 
their  old  ratios  to  each  other.  The  proof  of 
this  principle  I  have  endeavored  to  set  forth 
in  Book  II.,  Chapter  2,  page  160,  of  my  book, 
"The  Principles  of  Money  and  Banking." 

To  sum  up  the  matter  in  simple  language, 
the  quantity  of  gold  undoubtedly  is  influential, 
among  other  things,  upon  prices,  but  among 
these  other  things  is  the  state  of  credit,  which 
at  least  within  short  intervals  moves  prices  up 
and  down  much  more  violently  than  they  are 
moved  by  changes  in  the  quantity  of  gold  and 
in  the  long  run  defeats  any  definite  calcula- 
tions as  to  the  separate  influence  of  the  quan- 
tity of  gold. 


An  Answer  to  the  History  of  Prices* 

By  ALONZO    E.    COTTIER. 

It  may  be  true  that  "prices  through  social 
evolution  progressively  increase  over  long 
periods  of  time"  as  stated  by  Mr.  Selwyn- 
Brown,  but  that  they  do  so  without  reference 
to  fluctuations  in  the  volume  of  the  money 
metals  as  implied  by  him,  his  pamphlet  affords 
no  proof  whatever. 

It  may  be  claimed  for  his  theory  that  in- 
creased supplies  of  the  precious  metals  are 
manifestations  of  social  evolution  and  conse- 
quently if  prices  are  thus  increased,  then  the 
primary  cause  is  social  evolution,  and  the  in- 
creased supply  with  its  results  on  prices  is 
only  secondary,  an  effect  rather  than  a  cause. 

It  is  a  noteworthy  fact,  however,  that  of  the 
three  great  upward  swings  in  prices  that  have 
taken  place  during  the  Christian  era,  two  clear- 
ly owed  their  impulse  to  wars  of  conquest — 
rather  than  to  increased  production  of  the 
precious  metals  through  the  arts  of  civilization. 

*  Specially  written  for  this  volume  by  Mr.  Alonzo  E.  Cottier. 
118 


119 
THREE    GREAT    PRICE    MOVEMENTS. 

The  first  upward  swing  in  prices  of  which 
we  have  authentic  record  had  its  inception  in 
the  reign  of  Augustus.  By  successive  con- 
quests Rome  had  not  alone  acquired  possession 
of  nearly  all  the  mines  throughout  the  world 
(then  yielding  the  precious  metals)  but  a  large 
proportion  of  the  whole  mass  of  gold  and  silver 
which  had  been  produced  during  the  pre- 
ceding centuries  was  drawn  to  Italy. 

William  Jacob,  in  his  "Inquiry  Into  the  Pre- 
cious Metals,"  estimates  the  stock  of  gold  and 
silver  in  Rome  on  the  accession  of  Augustus 
at  the  equivalent  of  one  billion  eight  hundred 
million  dollars.  This  was  the  accumulated 
treasure  of  centuries  which  had  been  possessed 
by  the  sovereigns  of  peoples  conquered  by 
Rome.  The  amount  seems  incredible  measured 
by  the  accumulation  of  to-day — exceeding  as 
it  does  the  gold  possessed  by  any  nation  of 
the  modern  world.  There  can  be  no  doubt, 
however,  that  at  the  lowest  estimate  the  Im- 
perial store  amounted  to  the  equivalent  of  hun- 
dreds of  millions  of  dollars,  and  its  gradual  in- 
jection into  circulation  among  the  Romans  and 
the  people  of  Italy  was  the  direct  cause  of  the 
increase  of  prices  that  took  place  in  Rome  and 
which  raised  the  price  level  in  the  time  of 
Diocletian  to  a  point  probably  not  far  from 
that  prevailing  in  modern  times. 


120 

The  decline  of  Rome  was  accompanied  by 
the  wasting  away  of  this  treasure,  and  the 
Barbarian  onslaughts  on  the  Roman  dominions 
hastened  its  dispersal.  Mining  practically 
ceased  and  the  gloom  of  the  Middle  Ages  fol- 
lowed, when  prices  sunk  to  the  lowest  level 
of  the  Christian  Era.  "Between  the  gth  and 
the  1 5th  centuries  the  quantity  of  the  precious 
metals  in  existence  had  fallen  to  a  minimum 
and  prices  reached  the  point  that  copper,  tin 
and  iron  contained  a  value  for  their  bulk  ade- 
quate to  effect  the  few  and  tardy  exchanges  of 
the  dark  age"  (Francis  A.  Walker's  Money). 
The  Dugdale  manuscript  cited  by  Mr.  Selwyn- 
Brown  falls  within  this  period. 

The  second  great  upward  swing  in  prices 
followed  the  acquisition  by  the  Spaniards  of 
the  Mexican  and  Peruvian  hoards  of  precious 
metals  and  the  development  of  their  mines 
upon  the  discovery  of  America.  The  effect  on 
European  prices  is  shown  in  Mr.  Selwyn- 
Brown's  Table  No.  I.  Wheat  rose  100%  and 
other  prices  in  proportion.  In  1887  Mr.  Inglis- 
Palgrave,  testifying  before  the  Herschell  Com- 
mission, estimated  the  increase  in  the  supply 
of  precious  metals  from  1492  to  1640  at  600%, 
although  the  increase  in  prices  amounted  to 
only  200%. 

The  third  great  upward  swing  followed  the 
discovery  of  gold  in  California  and  Australia. 
Prices  for  articles  included  in  Sauerbeck's  In- 


121 

dex  (Mr.  Selwyn-Brown's  Table  No.  6)  rose 
from  74  in  1849  to  an  average  of  105  in  1857,  to 
in  in  1873,  then  dropped  to  an  average  of  61 
in  1896,  following  the  practical  elimination  of 
billions  of  dollars  of  silver  as  a  standard  money 
and  its  regulation  thenceforth  to  the  level  of 
a  mere  commodity. 

SELWYN-BROWN'S   CONTENTIONS   NOT 
WELL  BASED. 

Mr.  Selwyn-Brown's  contention  that  prices  in 
England  in  A.  D.  1290  remained  practically  the 
same  as  in  Rome  A.  D.  303,  is  not  sustained  by 
his  tables.  He  asks  us  to  contrast  the  prices  of 
poultry  and  meat  in  Tables  II.  and  III.  and  says 
that  little  or  no  advance  was  made  in  these 
during  a  period  of  one  thousand  years.  What 
the  tables  really  show,  however,  is  an  astound- 
ing decline.  For  example,  Diocletian  attempted 
to  arbitrarily  reduce  the  price  of  pork  to  twelve 
cents  a  pound  (the  then  current  price  must 
have  been  higher),  whereas,  one  thousand 
years  later  a  sow  could  have  been  purchased 
for  sixty-two  cents,  and  ducks  for  which  the 
decree  price  in  Rome  was  sixty  cents  each, 
could  have  been  bought  for  only  two  cents 
apiece!  It  should  be  noted,  however,  that  an 
exact  comparison  of  the  Roman  prices  with 
those  of  the  present  day  is  impossible  owing 
to  the  uncertainty  that  exists  as  to  the  real 


122 

value   of   the    Roman    coin — the    denarius,    in 
which  the  decree  prices  were  expressed. 

Table  No.  6  does  not  sustain  Mr.  Selwyn- 
Brown's  theory  that  social  evolution  produces 
higher  prices  when  working  over  long  periods 
of  time.  From  1846  to  1907  is  a  fairly  long 
period  of  time,  and  measured  by  commercial 
activities,  inventions,  increase  in  population 
and  complexity  of  wants,  was  probably  the 
most  progressive  period  in  history,  yet  at  the 
end  of  it  we  find  prices  at  about  the  same  level 
as  at  its  beginning.  An  examination  of  the 
table  shows,  however,  large  fluctuations  during 
the  intermediate  years,  to  wit:  a  rise  of  50% 
from  1849  to  1873  (gold  discoveries),  followed 
by  a  drop  of  45%  to  1896  (silver  demonetiza- 
tion), a  recovery  to  1907  of  nearly  50%  (in- 
creasing production  of  gold). 

THE  LOW  PRICES  OF  1896. 

The  period  from  1872-73  to  1896  of  falling 
prices  was  one  characterized  by  a  diminishing 
supply  of  standard  money.  While  a  general 
realization  of  the  factor  of  silver  demonetiza- 
tion in  producing  this  result  has  been  obscured 
by  political  exigencies  in  the  United  States  and 
possibly  by  self  interest  in  England,  that  it  was 
the  controlling  influence  in  producing  the  low 
prices  up  to  1896  will  hardly  be  denied  at  the 
present  day. 


123 
THE  PENDULUM  THEORY. 

Mr.  Holt,  the  compiler  of  "The  Gold  Supply 
and  Prosperity,"  in  summing  up  the  arguments 
of  the  contributors  to  that  symposium  in  a 
final  chapter,  suggests  that  prices  under  the  in- 
fluence of  an  increasing  supply  of  gold  will  rise 
faster  than  the  actual  quantity  of  gold  in  stock 
would  warrant.  If  that  is  true,  then  would  not 
the  converse  also  be  true,  to  wit:  under  a  di- 
minishing supply  of  the  monetary  standard, 
prices  would  decrease  more  rapidly  than  the 
reduced  volume  of  money  would  actually  war- 
rant? 

The  deduction  from  this  theory  would  there- 
fore be  that  prices  in  1896  had  dropped  below 
the  point  justified  by  relative  exchangeable 
values  and  that  since  that  time,  under  the  in- 
fluence of  a  greatly  increased  supply  of  gold, 
they  have  increased  faster  than  would  be  justi- 
fied by  relative  exchangeable  values.  Is  it  not 
a  fair  inference  from  this  that  prices  will  move 
upward  less  violently  during  the  next  ten 
years  than  in  the  decade  just  terminated? 

It  took  twenty-three  years  for  prices  to  drop 
from  in  in  1873  to  61  in  1896,  and  if  we 
assume  that  a  corresponding  time  will  be  re- 
quired for  the  return  swing  of  the  pendulum, 
that  would  indicate  a  return  to  the  prices  of 
1873  by  1919.  Now  prices  had  already  recov- 
ered from  6 1  to  88  (44%)  prior  to  the  panic 


124 

of  1907,  leaving  room  for  only  an  advance 
from  88  to  in  (25%)  to  bring  us  back  to  the 
high  level  of  1873. 

The  above  theory  may  be  objected  to  as  being 
purely  fanciful,  in  that  it  is  not  sustained  by 
any  computation  to  show  that  by  1919  the  ad- 
verse effects  of  the  withdrawal  of  silver  will 
have  been  balanced  by  an  increased  supply  of 
gold  sufficient  to  also  provide  for  the  increased 
volume  of  commodities,  naturally  to  be  ex- 
pected by  that  time. 

A  corroborative  reason,  however,  for  think- 
ing that  prices  will  now  rise  more  slowly  is 
found  in  Prof.  W.  S.  Jevons'  book  "Investiga- 
tions in  Currency  and  Finance." 

ECONOMIC    SANCTION    FOR    THE    BELIEF 

THAT  PRICES  WILL  NOW  RISE 

MORE  SLOWLY. 

Prof.  Jevons  says,  "In  periods  of  the  depre- 
ciation of  gold,  in  consequence  of  its  increase 
in  production,  the  most  sudden  fall  must  occur 
at  first  and  the  value  of  gold  will  fall  more  and 
more  slowly  as  time  gets  on  and  the  total  ac- 
cumulation of  gold  grows."  For  example,  if 
the  world's  gold  stock  were  $100,000,000,  and 
$50,000,000  more  were  added  by  production  in 
a  year,  and  other  things  remained  equal,  we 
could  expect  a  rise  of  50%  in  prices.  The  sup- 
ply now  being  $150,000,000,  a  following  year's 
production  of  $50,000,000  more  would  increase 


125 

the  total  supply  only  33  1-3%,  therefore  a  rise 
in  prices  of  that  amount  only  would  be  indi- 
cated for  the  year,  and  so  on. 

The  quantity  theory  of  gold  also  involves  a 
quantity  theory  of  commodities.  Mulhall's 
"History  of  Prices"  gives  the  increased  volume 
of  the  world's  products  from  1850  to  1884  at 
104%,  being  an  average  of  3%  per  annum. 
The  present  visible  supply  of  gold  being  over 
seven  billion  dollars  and  additions  now  being 
made  from  production  of  about  $325,000,000 
annually  (after  deducting  that  used  in  the  arts, 
etc.),  the  present  rate  of  increase  of  the  world's 
supply  is  therefore  only  about  5%.  Now,  if 
the  volume  of  commodities  is  also  increasing 
3%  yearly,  then  the  net  yearly  increase  in 
prices  would  be  only  2%.  The  depreciation  of 
gold  would  thus  proceed  more  slowly  than  in 
the  past  ten  years,  unless  indeed  a  large  ex- 
pansion in  production  should  take  place. 

It  is,  of  course,  impossible  to  take  effectively 
into  consideration  all  the  factors  that  will  arise 
to  influence  future  prices.  The  above  is  there- 
fore submitted  not  as  a  prediction  that  prices 
will  be  only  20%  higher  in  1919  than  in  1907, 
but  only  to  indicate  some  reasons  for  believing 
that  the  rise  will  be  less  violent  than  that  which 
occurred  after  1896  and  up  to  the  fall  caused  by 
the  panic  of  1907.  From  this  latter  level  a 
rather  quick  recovery  seems  to  be  generally 
anticipated. 


Gold  Depreciation 
(A  Rejoinder.*) 

By    BYRON    W.    HOLT. 

Of  the  three  fundamental  propositions  ad- 
vanced in  connection  with  the  problem  of  gold 
supply,  neither  Mr.  Conant  nor  Mr.  Cottier 
have  discussed  but  one.  These  three  proposi- 
tions are: 

1.  The  gold  supply  will  continue  to  increase 
rapidly  for  many  years. 

2.  Because  of  this  increase  and  the  fact  that 
gold  is  the  standard  of  value  prices  of  com- 
modities will  rise  rapidly. 

3.  Because  of  rising  prices  interest  rates  will 
average  higher  than  they  would  if  prices  were 
stable. 

These  propositions  contain  all  that  is  really 
debatable  in  connection  with  the  gold  problem. 
Assuming  the  truthfulness  of  these  proposi- 
tions, the  more  important  results,  such  as  the 

*  This  reply  to  the  dissenting  views  of  Mr.  Selwyn-Brown. 
Mr.  Conant  and  Mr.  Cottier  was  specially  written  for  this 
volume  by  Mr.  Holt. 

126 


127 

effect  on  bond  and  stock  values,  on  equities 
in  real  estate,  on  speculation,  etc.,  are  deduci- 
ble  and  reasonably  certain. 

Neither  Mr.  Conant  nor  Mr.  Cottier  claims 
that  there  will  not,  in  the  next  ten  or  twenty 
years,  be  a  tremendous  increase  in  the  output 
and  supply  of  gold.  Neither  denies  that  if  we 
have  such  an  increase  and  if  prices  of  com- 
modities advance  rapidly  that  the  average  rate 
of  interest  will  not  be  high.  Apparently  their 
only  quarrel  is  with  the  idea  that  a  greatly 
increased  supply  of  gold  will  cause  the  average 
price  level  of  commodities  to  rise  materially 
from  year  to  year  or,  at  least,  from  decade  to 
decade.  Nor  is  it  clear  to  what  extent  they 
wish  to  quarrel  with  this  idea. 

Mr.  Conant  freely  admits  that  "The  quantity 
of  gold  undoubtedly  is  influential,  among  other 
things,  upon  prices,  but  among  these  other 
things  is  the  state  of  credit,  which  at  least 
within  short  intervals  moves  prices  up  and 
down  much  more  violently  than  they  are  moved 
by  changes  in  the  quantity  of  gold  and  in  the 
long  run  defeats  any  definite  calculation  as  to 
the  separate  influence  of  the  quantity  of  gold." 

Admitting  that  the  "state  of  credit"  tempo- 
rarily and,  at  times,  violently  "moves  prices  up 
and  down,"  what  has  this  fact  to  do  with  the 
main  question?  The  influence  of  cheapening 
gold  upon  prices  continues  incessantly  regard- 
less of  temporary  influences  of  one  kind  or 


128 

another ;  just  as  the  influence  of  the  moon  and 
sun  operates  steadily  on  the  earth  and  causes 
the  tide  to  rise  regardless  of  the  temporary 
and  perhaps  violent  fluctuations  due  to  waves 
caused  by  the  "state  of  the  weather." 

Besides,  has  not  the  supply  of  gold  more  to 
do  with  the  "state  of  credit"  than  any  other 
single  factor  ?  Is  it  not  certain  that  the  world's 
unprecedented  credit  resources  of  to-day  are 
due  primarily  to  the  world's  unparalleled  stocks 
of  gold  in  public  and  private  vaults?  It  is  be- 
cause of  our  rapidly  increasing  credit  facilities 
that  business  revives  quickly,  after  a  panic,  and 
proceeds  feverishly  and  speculatively  until  the 
credit  facilities  are  again  exhausted  and  relapse 
follows.  Then,  when  our  credit  power  is  re- 
established— mainly  by  increased  gold  reserves 
— we  rush  ahead  and  repeat  the  speculative 
cycle.  The  speculative  cycle  is  due  to  the 
effect  of  rapidly  rising  prices.  If,  as  in  the  last 
decade,  prices  rise  40%  in  five  years,  then  de- 
cline 6%  in  one  year,  then  advance  20%  in 
three  years,  and  decline  15%  in  one  year,  it  is 
reasonably  certain  that  when  prices  begin  to 
rise  again,  as  is  now  the  case,  there  will  be  a 
substantial  rise  in  the  next  two  years.  Human 
nature  being  what  it  is,  manufacturers,  mer- 
chants and  speculators  will  hasten  to  take  ad- 
vantage of  this  prospective  rise  in  prices.  Ma- 
terials and  goods  will  be  bought,  not  entirely 
for  immediate  needs,  but  to  carry  in  stock 


129 

while  their  values  are  enhancing.  A  quick  re- 
vival follows  and  soon  all  manufacturing  and 
transportation  facilities  are  taxed  to  their  lim- 
its. The  demand  for  new  capital  soon  exhausts 
the  accumulated  credits  of  the  world,  money 
gets  "tight,"  prices  begin  to  decline,  demand 
for  goods  slackens,  mills  close,  railroad  earn- 
ings decline  and  industry  halts  until  new  credit 
can  be  created. 

There  is  nothing  in  all  of  this  round  of  in- 
dustrial and  financial  events  to  disprove  the 
so-called  quantity  theory  of  gold.  No  one 
claims  that  prices  will  rise  continually,  every 
day,  every  month  and  every  year,  under  the 
influence  of  cheapening  gold.  The  main  claim 
is  that,  disregarding  temporary  fluctuations, 
average  prices  will,  every  three,  five  or  ten 
years,  attain  new  high  levels. 

Mr.  Conant's  statements  in  regard  to  de- 
clines in  the  prices  of  certain  articles,  because 
of  improved  methods  of  production,  about  ad- 
vances in  the  prices  of  certain  other  articles, 
because  of  their  scarcity  or  "difficulty  in  ob- 
taining them"  and  about  some  articles  being 
more  "sensitive  to  changes  of  price"  than 
others,  as  well  as  his  statement  about  the  "con- 
stant inter-related  changes"  of  prices  of  differ- 
ent commodities  without  changing  their  old 
ratios  with  each  other,  are  like  the  flowers  that 
bloom  in  the  spring — '"they  have  nothing  to  do 
with  the  case."  To  discuss  these  facts  and  to 


130 

pretend  that  the  truthfulness  or  falsity  of  the 
quantity  theory  rests  upon  any  or  all  of  them 
or  that  it  demands  a  "uniform  rise  of  prices" 
is  to  thresh  a  man  of  straw.  Discussions  of 
this  character  are  beside  the  question. 

To  make  a  fair  test  the  price  of  no  one  com- 
modity and  of  no  ten  commodities  must  be 
considered.  Each  and  all  may  be  exceptional. 
The  average  price  of  all  commodities  cannot  be 
exceptional.  The  average  price  for  a  month 
or  a  year,  however,  might  be  exceptional  and 
might  not  indicate  the  real  tendency  and  direc- 
tion of  prices.  The  average  price  of  all  com- 
modities for  a  long  period  of  time  must  show 
the  trend  of  prices  and  this  trend  must  show 
whether  gold  is  depreciating  or  appreciating. 
It  cannot  be  otherwise,  for  gold  is  the  standard 
of  value  by  which  all  other  things  are  meas- 
ured. It  is  on  one  side  of  the  economic  scales 
and  all  other  things  are  on  the  opposite  scale. 
When  one  scale  goes  down  the  other  scale  must 
go  up. 

While  we  talk  of  the  "quantity  theory"  of 
money  and  of  products  we  do  not  really  mean 
that  the  relative  quantities  of  any  two  com- 
modities determines  their  exchange  values.  It 
is  not  quantity  but  cost  of  production  that,  in 
the  end,  determines  the  exchange  values  of 
any  two  products — wheat  with  cloth,  coal 
with  cotton  or  corn  with  gold.  If  the  cost  of 
producing  any  one  commodity  is  suddenly  re- 


131 

duced  50%,  while  the  cost  of  producing  other 
commodities  remains  the  same,  the  cheapened 
commodity  will,  under  free  competition,  tend 
to  sell  at  half  its  original  price,  as  compared 
with  the  prices  of  the  other  commodities.  If 
it  be  a  perishable  commodity,  such  as  wheat, 
cotton,  paper  or  potatoes,  it  will  soon  be  sell- 
ing at  half  its  original  price.  If  it  be  a  non- 
perishable  commodity,  such  as  gold  or  silver, 
the  price,  or  exchange  value,  will  not  change 
rapidly,  and  much  time  will  be  required  to  ad- 
just the  price  to  the  cost  of  production.  Gen- 
erally speaking,  then,  the  quantity  of  a  com- 
modity affords  a  rough  measure  of  its  ex- 
change value  with  other  commodities.  It  is 
more  nearly  true  of  gold  than  of  any  other 
commodity  because  gold  is  an  almost  universal 
standard  of  value  and  medium  of  exchange, 
and  the  demand  for  it  is  unlimited.  Other 
things  remaining  the  same,  doubling  the  quan- 
tity of  gold,  then,  will  double  the  prices  of  all 
commodities,  for  all  are  measured  by  gold. 

But  other  things  do  not  remain  the  same. 
It  takes  time,  much  time,  to  double  the  world's 
supply  of  gold.  While  this  is  being  done,  not 
only  is  population  increasing  and  civilization 
expanding,  but  improvements  are  cheapening 
the  cost  of  producing  most  other  commodities. 
Both  processes  tend  to  lower  prices  and  will 
lower  prices  constantly  if  there  is  no  reduction 


132 

in  the  cost  of  producing  the  commodity  chosen 
as  the  standard  of  value. 

To  overcome  the  tendency  of  prices  to  de- 
cline because  of  improved  methods  of  produc- 
tion, an  increase  of  something  like  2%  a  year 
is  necessary  in  the  quantity  of  gold.  To  coun- 
teract the  increased  demand  for  gold,  due  to 
industrial  expansion,  a  further  increase  in 
quantity  of  perhaps  i%  a  year  is  necessary. 

Unless,  then,  the  world's  supply  of  gold  in- 
creases at  the  rate  of  about  3%  a  year,  the 
price  level  will  tend  downward. 

This  fact  explains  why — taking  the  figures 
quoted  by  Mr.  Cottier — prices  increased  only 
200%  from  1492  to  1640,  while  the  supply  of 
the  precious  metals  increased  600%.  It  ex- 
plains why  prices  declined  materially  from 
1873  to  1890.  During  the  latter  period  the 
supply  of  gold  increased  only  about  21%.  As 
this  was  insufficient  to  offset  the  natural  de- 
cline in  prices,  the  price  level  declined  22% 
during  this  period. 

Generally  speaking,  Mr.  Cottier's  conclusions 
do  not  appear  to  be  justified  from  his  facts. 
He  admits  that  prices  rose  in  Rome  when  the 
gold  supply  increased  and  that  they  fell  during 
the  "Middle  Ages,"  when  "mining  practically 
ceased"  and  "the  quantity  of  the  precious  met- 
als in  existence  had  fallen  to  a  minimum."  He 
admits  that  an  "upward  swing  in  prices  fol- 
lowed the  acquisition  by  the  Spaniards  of  the 


133 

Mexican  and  Peruvian  hoards  of  precious  met- 
als and  the  development  of  their  mines  upon 
their  discovery  of  America."  He  admits  that 
another  "great  upward  swing  followed  the  dis- 
covery of  gold  in  California  and  Australia." 

After  admitting  nearly  all  that  is  claimed 
by  those  who  accept  the  quantity  theory  of 
money,  he  expresses  the  opinion  that,  in  fu- 
ture, the  rise  of  prices  will  not  be  as  rapid  as  in 
the  past  ten  years.  He  predicts  that  "prices 
will  be  only  20%  higher  in  1919  than  in  1907." 

This  would  indicate  a  rise  in  prices  of  about 
2%  a  year,  which  is  about  all  that  could  be  ex- 
pected when  the  world's  gold  supply  is  in- 
creasing only  about  5%  a.  year.  However,  as 
prices  declined  about  15%,  from  the  highest 
point  in  1906  to  the  lowest  point  in  1907,  it  is 
highly  probable  that  we  will  not  have  to  wait 
three  years  to  see  prices  20%  above  the  low 
level  of  1907.  This  prediction  will  be  put  along- 
side of  Mr.  Cottier's. 

Another  reason  for  expecting  a  swift  rise  in 
prices  in  the  next  five  years  is  due  to  the  ab- 
normally high  profits  now  made  in  the  world's 
greatest  gold  mines.  In  the  Robinson  Gold 
Mine — the  world's  greatest  producer — the  net 
profits  in  1907  were  71%,  and  in  September, 
1908,  77%.  In  the  whole  Rand  mines — now 
producing  $150,000,000  of  gold  a  year — the 
average  profits  for  the  first  nine  months  of  this 
year  were  42^%.  That  is,  for  every  $100,000,000 


134 

of  gold  produced  $42,500,000  are  profits.  Such 
profits  as  these  cannot  but  attract  more  capital 
to  gold  and  cause  the  output  and  supply  of 
gold  to  rise  rapidly  in  the  next  few  years. 
There  is  reason,  then,  for  supposing  that  the 
world's  gold  supply  will  increase  even  more 
rapidly  than  at  the  rate  of  5%  a  year,  during 
the  next  10  years,  and  that  prices  will  rise 
more  than  an  average  of  2%  a  year  for  this 
period.  More  likely,  they  will  rise  an  average 
of  3%  or  4%  a  year. 

"The  proof  of  the  pudding  is  in  the  eating.'* 
We  will  watch*the  course  of  prices  with  great 
interest  for  the  next  few  years.  Unfortunately 
we  no  longer  have  an  accurate  and  scientific 
method  of  tabulating  prices.  The  world  met 
with  a  very  appreciable  loss  when  "Dun's  Index 
Number"  was  discontinued  two  years  ago. 


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The  Pitfalls  of  Speculation 

BY  THOMAS  GIBSON 

In  this  volume  the  author  has  endeavored 
to  discuss  as  simply  as  is  possible,  the  salient 
factors  of  speculation  and  investment.  The 
Table  of  Contents,  following  the  introduction, 
treats  of: 

Ignorance. 

Over-Speculation,  etc. 

Manipulation. 

Accidents. 

Business  Methods  in  Speculation. 

Market  Technicalities. 

Tips. 

Mechanical  Speculation. 

Short  Selling. 

What  500  Speculative  Accounts  Showed. 

Grain  Speculation. 

Suggestions  as  to  Intelligent  Methods. 

Conclusion. 

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The  Cycles  of  Speculation 

BY  THOMAS  GIBSON 

This  book  enters  a  little  further  into  the  influ- 
ences bearing  on  price  changes,  than  does  the  "Pit- 
falls of  Speculation,"  described  on  the  preceding 
page. 

The  Table  of  Contents  introduces  as  bearing 
upon  the  subject: 

The  Cycles  of  Speculation. 

The  Gold  Supply  and  Its  Effect  on  Prices. 

Money. 

Political  Influences. 

Crops,  etc. 

Puts  and  Calls. 

The  Question  of  Dividends. 

Basing  Railroad  Values. 

Effect  of  Business  Depression. 

Undigested  Securities. 

How  to  Compute  the  Value  of  Rights. 

Barometer  of  Averages. 

Best  Method  of  Trading. 

Indication  of  Crisis. 

The  Ordinary  Swing  of  Prices. 

The  Factor  of  Safety. 

Borrowing  and  Lending  Stock. 

Scalping. 

Crop  Damage. 

Selection  of  Securities. 

The  Bank  Statement. 

The  Cycles  of  Stock  Speculation. 

The  Cycles  of  Grain  Speculation. 

The  Cycles  of  Cotton  Speculation. 

Conclusion. 

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Thomas  Gibson's 
Market  Letters  for  the  Year  1907 

This  volume  includes  all  the  weekly  letters 
and  several  of  the  special  letters  published  in 
the  year  1907.  The  value  of  this  work  lies  in 
the  fact  that  the  great  decline  of  1907  was  pre- 
dicted months  before  it  occurred,  and  every 
reason  for  anticipating  such  a  decline  is  set 
forth  in  the  letters. 

The  educational  value  of  the  work  cannot  be 
overestimated.  It  has  demonstrated  absolutely 
that  it  is  possible  to  foresee  great  price  changes 
through  the  mediums  of  logic  and  the  study  of 
economic  factors. 

The  book  contains  a  number  of  valuable 
statistical  tables  and  offers  a  broad  prediction 
of  price  movements  in  the  year  1908. 

Uniform  in  size  with  the  Pitfalls  and  the 
Cycles  of  Speculation.  Price,  bound  in  cloth, 
$1.00.  By  mail,  $1.10. 

Complete  Library  (7  vols.),  $5.00. 


Published  by 

THE  GIBSON  PUBLISHING  CO. 

15  William  Street,  New  York 


Thomas  Gibson's 
Weekly  Market  Letters  for  1908 

IN  TWO  VOLUMES 
Vol.  J— Weekly  Market  Letters.         Vol.  2-Book  of  Charts 


This  volume  includes  all  the  weekly  letters  pub- 
lished in  the  year  1908,  together  with  a  number  of 
valuable  statistical  tables.  The  letters  form  a  history 
of  the  stock  market  of  1908,  not  alone  a  record  of 
prices  and  movements,  but  a  practical  and  philo- 
sophic discussion  of  economic  causes  and  effects 
underlying  the  broader  swings,  and  also  offers  a 
comprehensive  forecast  of  price  movements  for  1909. 

No  attempt  is  made  at  day  to  day  or  week  to 
week  prognostications.  The  intent  and  purposes  of 
these  letters  have  been  to  adhere  to  the  original 
policy  which  is  made  clear  in  the  Weekly  Letters  of 
1907.  Current  events  of  interest  in  market  circles 
are  taken  up  each  week  and  their  relation  market- 
wise  discussed  in  the  broadest  sense. 

Ordinary  gossip,  idle  rumors  or  "inside  informa- 
tion" find  but  little  space  in  these  letters,  although, 
of  course,  some  of  this  base  currency  of  the  Street 
cannot  be  entirely  ignored  because  of  its  temporary 
influence  upon  prices  and  sentiment. 

The  book  of  charts,  which  is  more  fully  described 
on  another  page,  is  an  almost  indispensable  com- 
panion work  to  the  weekly  letters,  being  a  visible  aid 
to  the  thorough  understanding  of  the  movements  dis- 
cussed and  analyzed.  Reference  is  invariably  made  in 
the  letters  to  particular  pages  in  the  book  of  charts. 

Price,  bound  in  cloth,  uniform  in  size  with  Pitfalls 
and  Cycles  of  Speculation,  $1.00  for  each  volume,  or 
$1.50  for  the  two.     By  mail,  $1.10  and  $1.62. 
Complete  Library  (7  vols.),  $5.00. 


Published  by 

THE  GIBSON  PUBLISHING  CO. 

15  William  Street,  New  York 


Thomas  Gibson's  Book  of  Charts 

In  this  volume  are  reproduced  the  charts  issued  in 
connection  with  Thomas  Gibson's  Market  Letters  for 
1908.  A  few  of  the  various  subjects  graphically 
presented  in  these  charts  are: 

Railroad  Earnings  and  Their  Immediate  Effect  on 
Stock  Prices  in  Years  1893-4,  1903-4  and  1907-8. 

Effect  of  Reductions  in  Iron  and  Steel  Prices  in 
Periods  of  Depression  upon  the  Common  Stock  of 
the  United  States  Steel  Corporation. 

Stock  Prices  and  Total  Cereal  Crops  of  the 
United  States  by  Years  since  1885. 

Market  Movements  of  Stocks  in  14  years  in  which 
Labor  Troubles  Occurred. 

Stock  Prices  and  Cotton  Crop  of  the  United  States. 

Average  Monthly  Stock  Movements  and  Quarter- 
ly Dividends  of  Amalgamated  Copper  for  Years  1900 
to  1908;  also  Average  Monthly  Prices  of  Electrolytic 
Copper  for  the  same  Period. 

Average  Monthly  Stock  Market  Prices  and  Divi- 
dend Payments  for  Years  1904-08. 

Average  Monthly  Movements  of  20  Active  Rail- 
way Stocks  from  January,  1888,  to  March,  1908; 
also  Dull  Months  of  that  Period. 

Bank  Clearings  of  the  Entire  United  States  and 
Prices  of  Twenty  Principal  Railroad  Stocks  for 
Twenty-five  Years. 

Total  Cereal  Crop  of  the  United  States  and 
Prices  of  20  Principal  Railroad  Stocks  for  a  Period 
of  Years. 

Comparison  of  Earnings  and  Price  Movements  of 
United  States  Steel  Common  since  1902. 

Stock  Prices,  Crops,  Trade  Balances  and  Bank 
Clearings  from  1885  to  1908. 

Stock  Market  Movements  in  Month  of  June,  1908. 

Railroad  Earnings  and  Market  Movements  of 
Stocks  for  6  Years  Next  Following  Panic  Years  of 
1873,  1877,  1884,  1893,  1896,  1903. 

Market  Movements  of  Industrial  Stocks  for 
Seven  Years  Next  Following  Panic  Years. 

Price,  cloth,  $1.00.  Postage  prepaid. 

THE  GIBSON  PUBLISHING  CO. 

15  William  Street,  New  York 


Thomas  Gibson's 
Special  Market  Letters  for  J908 


The  subjects  discussed  have  been  chosen  as  bearing  directly 
upon  the  prices  of  securities,  and  in  all  cases  the  views  of 
men  who  speak  with  authority  are  presented. 

Probable  Effect  of  Tariff  Revision  on  Securities,  by  Byron 
W.  Holt,  chairman  Tariff  Committee,  Reform  Club  of  New 
York,  editor  of  The  Gold  Supply  and  Prosperity;  Increasing 
Gold  Supply  and  Stock  Prices,  by  Maurice  L.  Muhleman, 
ex-Deputy  Assistant  Treasurer  of  the  United  States ;  A  Talk 
About  Cotton,  by  Katherine  M.  Giles,  cotton  expert ;  The 
Coal  Land  Law,  a  compilation  of  the  confidential  opinions  on 
the  constitutionality  of  the  law  by  leading  Senators  and  Mem- 
bers of  Congress ;  The  Importance  of  Fixed  Charges,  by 
Carl  Snyder,  author  of  American  Railways  as  Investments, 
New  Conceptions  in  Science,  The  World  Machine,  etc. ; 
The  Balance  of  Trade,  by  Charles  A.  Conant,  ex-treasurer 
of  Morton  Trust  Co..  author  of  A  History  of  Modern 
Banks  of  Issue,  etc.  ;  Review  of  the  World's  Gold  Sup- 
ply, by  Arthur  Selwyn-Brown,  E.M.,  M.A.,  B.Sc.,  consult- 
ing mining  engineer;  The  Outlook  for  the  Next  Six 
Months,  by  Professor  J.  Pease  Norton  of  Yale  University, 
author  of  Statistical  Studies  in  the  New  York  Money  Mar- 
ket, etc. ;  Railroad  Earnings  and  the  New  Accounting,  by 
George  Bevan  Mott,  editorial  staff  The  Wall  Street  Summary; 
Gold  Depreciation  and  Security  Values,  by  Byron  W.  Holt ; 
Call  Money  Rates  and  Stock  Prices,  by  John  P.  Ryan,  financial 
writer;  Convertible  Bonds,  by  Robert  W.  Speir,  manager  bond 
department  of  Knauth,  Nachod  &  Kuhne,  New  York ;  The  Func- 
tion of  Speculation,  by  Frank  Fayant,  writer  on  financial  and  eco- 
nomic subjects ;  Mines  on  the  New  York  Curb,  by  George  E.  Vi- 
gouroux,  mining  editor  of  the  New  York  Commercial ;  Speculation 
— Its  Place  in  Economics,  Speculation  vs.  Gambling,  The 
Moral  Aspect  of  Speculation,  Should  Speculation  be  Regulated 
by  Law — are  the  captions  of  an  article  ably  discussed  by  How- 
ard Schenck  Mott,  associated  with  Messrs.  Malcom  &  Coombe, 
and  on  the  staff  of  Harper's  Weekly;  The  History  of  Prices 
for  2508  Years,  bv  Arthur  Selwyn-Brown,  E.M.,  M.A.,  B.Sc., 
etc. ;  Copper,  by  Frank  Fayant. 

Cloth,  Price  $1.00;  by  Mail,  $1.10. 

Complete  Library  (7  vols.),  $5.00. 


THE  GIBSON  PUBLISHING  CO. 

15  William  Street,  New  York 


TTQP 

TO  DESK  FROM  WHl5i  BORROWED 


LOAN  DEPT. 


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